1.(The Specific Factor Model) Jordan and Egypt produce automobiles and cloth each. Both countries use three factors of production. Automobiles are produced using skilled labor and capital. Cloth is produced using unskilled labor and capital. Capital is the mobile factor between the automobiles and the cloth industries.

a)(5 pts) Draw a graph to show the demand for capital, the return to capital, and the allocation of capital between sectors for Jordan. You may assume a relative world price Pa/Pc.

b)(5 pts) A new agreement between Jordan and Egypt allows unskilled labor to migrate into Jordan. How does this affect the allocation of capital between automobiles and cloth?

c)(5 pts) How does immigration affect the returns to skilled labor in Jordan?