Capital is the specific factor of sector X and land is the specific factor of sector Y . The marginal product of labor in sector X and that in sector Y are, respectively, given by MPLX = 150 LX and MPLY = 300 LY . This economy (Home) which is a small open economy has a comparative advantage in good Y and engages in free trade. Prices of good X and good Y under free trade are, respectively PX = 1 and PY = 1. The labor endowment, capital endowment and land endowment in Home are, respectively, 240, 100 and 60.

1. Compute the total income of workers under free trade.

2. Compute the total income of land owners under free trade.

3. Suppose that both PX and PY are doubled (i.e., PX = PY = 2 holds) under free trade, choose the correct statement(s).

a. workers gain

b. no one gains

c. capital owners gain

d. land owners gain

Suppose that an ad valorem import tariff, the rate of which is 100%, is imposed in Home (assume PX = PY = 1 under free trade).

4. Compute the amount of labor employed in the import sector with the tariff.