Consider a country called the North Pole that produces toy robots (R) and toy airplanes (A) in a specific-factors model setting. The production of both goods uses elf labor, but paints (T) is specific to the production of toy airplanes, and buttons (K) are specific to the production of toy robots. The price of toy airplanes is PA = 5 and the price of toy robots is PR = 100. The amounts of paints, buttons, and elf labor are T = 4000, K = 500, and L = 500, respectively. The marginal products of labor in the production of toy robots and toy airplanes are given:

MP LR = (K/LR)^1/3 (1)

MP LA = 10 (T /LA)^1/3 (2)

2.4 Do paint-owners or button-owners gain in real terms from this change?

A Paint-owners unambiguously gain, button-owners unambiguously gain

B Paint-owners unambiguously gain, button-owners unambiguously lose

C Paint-owners unambiguously lose, button-owners unambiguously gain

D Paint-owners unambiguously lose, button-owners unambiguously lose

E The effect for paint-owners and button-owners is ambiguous

F Paint-owners and button-owners do not gain or lose

2.5 Instead, suppose FDI causes T to rise by 16000. What is the new equilibrium nominal wage? 2.6 Do paint-owners or button-owners gain from this change?

A Paint-owners unambiguously gain, button-owners unambiguously gain

B Paint-owners unambiguously gain, button-owners unambiguously lose

C Paint-owners unambiguously lose, button-owners unambiguously gain

D Paint-owners unambiguously lose, button-owners unambiguously lose

E The effect for paint-owners and button-owners is ambiguous

F Paint-owners and button-owners do not gain or lose