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2. Assume Germany is relatively human- capital abundant and Slovakia is relatively physical- capital abundant. Also assume that telephone switchboards are human-capital intensive and cars

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2. Assume Germany is relatively human- capital abundant and Slovakia is relatively physical- capital abundant. Also assume that telephone switchboards are human-capital intensive and cars are physical- capital intensive. Assuming that tastes are the same: a) Draw a diagram to illustrate the pre- trade equilibria for both nations and identify which country has a comparative advantage in which good. b) In your diagram show the post- trade equilibrium points for each of the two countries including the production points, the consumption points, the international price, and the trade triangle. c) Show the impact of trade on factor prices in each country. d) Which factor of production would be in favour of trade in each country and which factor against? Why? (20 marks)

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