Consider an economy in which two factors of production, skilled labor and unskilled labor, produce two goods, skilled-labor-intensive electronic devices and unskilled-labor-intensive agricultural products (fruits and vegetables). Suppose the world is a Heckscher-Ohlin model (which implies both factors of production are freely mobile across industries, consumer preferences are assumed to be the same across countries and all economic agents are price takers), leaving only differences in the factor supplies of skilled and unskilled labor as a reason for trade.

Suppose that there has been an on-going trade liberalization in many countries worldwide. The government of this economy in thought experiment must choose between free trade and protectionism. The government has invited citizen representatives of skilled and unskilled workers in both sectors (of electronic devices and agricultural products) to express their opinions on the matter. Suppose that all citizen representatives understand the consequences of eliminating protectionism or free trade, and suppose as well that each representative simply wants to maximize his/her real income.

(Answer qualitatively, although a diagram and a demonstration by functions may help you explain your reasoning).

a. [8 marks] If this economy is skilled-labor abundant relative to the rest of the world, which of the four groups (skilled workers in electronic device sector, unskilled workers in electronic devices, skilled workers in agricultural sector and unskilled workers in agricultural sector) do you expect to vote for free trade, and which do you expect to oppose it? Why?

If the government of this economy is determined by the need to keep unskilled workers happy, will the politicians adopt free trade or protectionist policies? Explain

b. [8 marks] If the economy is unskilled-labor abundant relative to the rest of the world, answer the same questions as in part (a), explaining any differences there might be with previous answer.