2. The following questions focus on the Rybczynski theorem.

(a) (30 points) State the theorem and illustrate it graphically. Why is this theorem important in

the context of the Heckscher-Ohlin model?

(b) (30 points) Suppose that at current factor prices cloth is produced using 20 hours of labor

for each acre of land, and that food is produced using only 5 hours of labor per acre of land.

Answer the following questions:

Assume that the economy's total resources are 1200 hours of labor and 120 acres of

land. Determine the allocation of resources between two goods, Food and Manufacturing.

Please provide a numeric answer.

Now assume that, holding factor prices fifixed, the labor supply increases fifirst to 1600, then

to 2000 and fifinally to 2400 hours. Using the Edgeworth box for production, trace out the

changing allocation of resources.

What would happen if the labor supply were to increase even further?

(c) (40 points) Miami experienced a large inflflow of foreign workers in the early 1980's, but

economists uncovered only very limited effffects on the labor market outcomes of the native

population. Can you use the Rybczynski theorem to rationalize this fifindings? How? Explain

your argument carefully.