Consider a Heckscher-Ohlin framework. Domestic produces two goods, apples and bananas, using labor and capital. Domestic has 120 units of labor and 60 units of capital. Each good requires using capital and labor in fixed proportions such that the optimal capital-to-labor ratio is always 1/5 in the apple industry and 1 in the banana industry. For example, producing 1 banana requires exactly 1 unit of labor and 1 unit of capital.

5.1 Which industry in capital-intensive?

A Apple.

B Banana.

C Both. D Neither.

5.2 How many workers work in the apple industry in equilibrium? 5.3 According to the Rybczynski theorem, immigration into Domestic will result in:

A An increase in production of apples, and a decrease in production of bananas.

B A decrease in production of apples, and an increase in production of bananas.

C An increase in production of apples, and an increase in production of bananas.

The next part is a little bit harder, so use the following information as hints. First, let w = r = 1. Second, use the fact that profit in each industry must be zero.

5.4 What is the price of a banana in equilibrium?