Answer the following questions according to Heckscher-Ohlin Theory.

Home Country is capital-abundant and Foreign Country is labour-abundant. The production of car is capital-intensive; the production of shirts is labour-intensive.

A. Suppose there is no trade between the 2 countries. Is Home Country's relative cost (wage to rent) is higher or lower than Foreign Country? Explain. (6 marks)

B. Now the 2 countries are to trade with each other. Which country will export cars and which country will export shirts? Explain. (6 marks)

C. Compare to no trade, will Home Country's relative cost (wage to rent) rise or fall when the 2 countries trade? Explain. (6 marks)

D. Would Home Country's workers benefit or suffer as a result of the trade? Explain. (5 marks)

E. Explain what it means by saying a country is labour-abundant? (4 marks)