2. Consider two countries, Here and There. Assume Here is capital abundant and There is labor abundant. Each country has the same two industries, computer manufacturing, which is capital intensive and shoe manufacturing which is labor intensive. Both countries are initially in autarky and each country has a fixed supply of labor and capital, but labor and capital may move freely from one industry to another within each country. Explain your answers. (20 pts.) a. From There's viewpoint will the relative price of shoes increase or decline once international trade between the two is introduced? Why? b. Will There's w/r increase or decrease once trade is introduced? Why? c. Draw a chart similar to figure 4.13 in the text for There that shows the effects of the change in the relative price of computers on There's wage to rental ratio and labor to capital ratio. 1. An increase in the relative price of computers shifts the relative demand curve from li'D1 to R0,. Wage/ rental 2. The relative wage decreases from (W/R)1 I g to (W/R)2. ..... ; ............... ' ...... _ (W/R)1 I """ ; Feenslra/'laylor, international Economics, Se 5 , 2021 Worth Publlshers 3 5 Lc/Krl : ': #2 (LC/K[)1 (Lg/K82 (Ls/[(5)1 (Ls/[(5)2 Labor/capital 3. At the new relative wage, the laborcapital ratio in each industry increases. FIGURE 4-13 Effect of a Higher Relative Price of Computers on Wage/Rental An