. gQUESTION 6. mm Model of Trade. 1|] POINTS. Suppose that there are two countries, Home and Foreign two factors of production, capital and labor, and two products, food and cloth. Suppose that the production flmctions in both industries are such that payments to capital are a constant share of output: 20% in the cloth industry and 80% in the food industry. a) 'Which good is capital-intensive? 'Which good is labor intensive? b) Suppose that the home country has 100 units of labor and 200 units of capital, while the foreign country has 300 units of labor and 150 units of capital. Under free trade, which country would export cloth? Mich country would export food? c) "What happens to the income of capital owners and laborers in each country when the countries open to trade? (1) Generalize the results from b) and c). How do endowments determine the pattern of trade and the effect on income in the m model