Assume two countries H and F Each country produces two goods, A and B Good A is relatively capital intensive and country F is relatively labor abundant Consider H and F to be large economies 1 Suppose the amount of labor in country F increases Using a diagram show how the PPF and the production point of country F change 2 Suppose the amount of labor in country F increases i Using a diagram show how the world relative supply for good B and the world relative price of good B changes ii How does it affect the terms of trade of country F iii How does it affect the terms of trade of country H iv How does it affect the welfare of country F v How does it affect the welfare of country H 3 Suppose the amount of capital in country F increases i Using a diagram show how the world relative supply for good B and the world relative price of good B changes ii How does it affect the terms of trade of country F iii How does it affect the terms of trade of country H iv How does it affect the welfare of country F v How does it affect the welfare of country H 4 Now consider country F in this model to be a small country Suppose the amount of labor in country F increases i How does it affect the terms of trade of country F ii How does it affect the terms of trade of country H iii How does it affect the welfare of country F iv How does it affect the welfare of country H

Question

Assume two countries  H and F  Each country produces two goods, A and B  Good A is relatively capital intensive and country F is relatively labor abundant  Consider H and F to be large economies  1 Suppose the amount of labor in country F increases  Using a diagram show how the PPF and the production point of country F change  2 Suppose the amount of labor in country F increases  i Using a diagram show how the world relative supply for good B and the world relative price of good B changes  ii How does it affect the terms of trade of country F  iii How does it affect the terms of trade of country H  iv How does it affect the welfare of country F  v How does it affect the welfare of country H  3 Suppose the amount of capital in country F increases  i Using a diagram show how the world relative supply for good B and the world relative price of good B changes  ii How does it affect the terms of trade of country F  iii How does it affect the terms of trade of country H  iv How does it affect the welfare of country F  v How does it affect the welfare of country H  4 Now consider country F in this model to be a small country  Suppose the amount of labor in country F increases  i How does it affect the terms of trade of country F  ii How does it affect the terms of trade of country H  iii How does it affect the welfare of country F  iv How does it affect the welfare of country H

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Assume two countries: H and F. Each country produces two goods, A and B. Good A is relatively capital intensive and country F is relatively

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