1.The following question comes from Flexible Technology Heckscher-Ohlin Model:

Suppose the following table of unit labor and capital requirements for X good and Y good is given with Home endowment of labor(L)=300 and capital (K) =200 and Foreign endowment of labor (L*) =200 and capital (K*) = 200

LaborCapital

Good X12

Good Y31

The following Harrod-Johnson Diagram (upper panel) has been drawn assuming Good X = Food and Good Y= Clothing:

(a)Identify numerically from the information given in Question 4, k an k*: k =___________ and k*=_____________

(b)Suppose you draw underneath the above diagram the following diagram of lower Panel of Harrod-Johnson Diagram with horizontal axis = wage/rental ratio (q) and vertical axis Px= Px/ Py =Pf/Pc Identify the range of wage/rental ratio in which new internationally equalized wage/rental ratio would be located after the free trade. Choose one from:

OB________ BD____________ DC_____________ CE_____________

(c)In order to demonstrate that international price equalization after trade brings about Factor Price Equalization, the lower panel of Harrod Johnson Diagram is constructed. From the information given in Question 4 identify the following points in the Diagram by choosing one matching letter point from F, G, H, J, K, M :

Px =_________Px*=________Px** = ____________q= ___________q*=_________q**=________________

where p is relative price of Food (X good) and Clothing (Y good) and q is wage-rental ratio(w/r) for Home country, * is for Foreign country and ** is for international relative price and wage/rental ratio.