Consider the Heckscher-Ohlin model where we have two countries, Home and Foreign, and two inputs, labour and capital. Home is relatively capital-abundant. There are two goods, manufactures and food. The production of manufactures is capital-intensive. Consumer tastes and production technologies are roughly the same in the two countries.

(a)Sketch a figure showing the autarky equilibrium point in each nation.

(b)Which nation has a comparative advantage in which good?

(c)What occurs in each country with trade? In the same sketch, show the point of production and consumption in each country with trade. Include the "trade triangles".

(d)Explain the impact of opening trade on the real wage and on the real rental on capital in each country.