1. (30 marks) In a specific factors model, suppose there are two countries: Econia and Bizland. Two goods are produced: pies and shirts. Pies are produced with labour and land, while shirts are produced with labour and capital. Suppose that Econia is relatively abundant in capital. Both countries have the same amount of labour. Do the whole question in terms of relative quantities and prices of pies (when needed).

1. (8 marks) Using a RS-RD diagram, draw a diagram that shows the RD curve for pies and the RS curves for each country (in terms of pies). Clearly label all curves, and use the curves to describe what happens to the relative price of pies in Econia when it opens up to trade with Bizland.
2. (8 marks) Using a labour allocation diagram for Econia (with pies on the left hand side) that shows the relevant curves and any shifts that occur, describe what happens to each of the following: nominal wage, real wages, labour in pies, labour in shirts.
3. (6 marks) Using a diagram, explain whether landowners in Econia win or lose from trade. Label any relevant points on the diagram, and any changes that occur, for full marks.
4. (8 marks) Suppose that, after having opened up to trade, some of Econias capital is purchased by Bizland (i.e. some capital moves from Econia to Bizland). Assume that, both before and after this moving of capital, that Econia and Bizland are opened up to trade with each other. Use an RS-RD diagram and a labour allocation diagram to describe how this movement of capital affects (for Econia): the relative price of pies, the labour allocation in each sector, nominal wages.