1. Consider the following representation of the Ricardian Model. Two countries, India and Vietnam, both produce two products - tea and garments. Total labour supply in India is 48 and the total labour supply in Vietnam is 60. The table provides the unit-labour requirements (aL) to produce tea and garments in each country.

India Vietnam

Tea 32 120

Garments 16 48

a.Consider the Specific Factors Model and suppose that land is specific to agriculture, capital is specific to manufacturing, and labour is mobile between sectors. A decrease in the price of agricultural products could lead to a decrease in the Marginal Product of Labour (MPL) in the manufacturing sector.

(1 mark) True or False?

(1 mark) Briefly explain your answer.

b.If the net gains from trade in a country are positive, in the short run everyone in the country is better off with trade liberalisation.

(1 mark) True or False?

(1 mark) Briefly explain your answer