AVWA AN LT WA LIIN LA INLAD Quiz 4 e All questions have the same weight. e Graphs need not be drawn to scale. There are two countries, Home and Foreign. High-skill labour and low-skill labour are the only factors of production. The Home country is high-skill abundant and the Foreign country is low-skill abundant, i.e. H/L > H*/L* where H and H* denote the high-skill workers in the Home and Foreign countries, respectively, and L and L* denote the low-skill workers in the Home and Foreign country, respectively. There are two goods, smartphones and clothes. The production of clothes is intensive in low-skill labour. When smartphones are produced in a single location. their production is intensive in high-skill labour. The production of a smartphone can be split into separate activities. Some of these activities require high skills (R&D, microchips) and some require medium skills (case, assembly). 1. Suppose that the Home and Foreign countries are in autarky (no trade). Describe whether the relative price of smartphones is higher or lower in the Home or the Foreign country and explain why. 2. Describe the labour market for the two countries under autarky: on a graph with the ratio of high-skill labour to low-skill labour (H/L) on the horizontal axis and the ratio of high-skill wage to low-skill wage (Wy /W) on the vertical axis, depict Home's no-trade economy-wide relative demand (RD) and relative supply (RS) of high-skill to low-skill labour and show the no-trade equilibrium wage-rental ratio. Do the same for the Foreign country in a separate graph