HECKSCHER OHLIN MODEL

. Payments to labor = WLo = 100 . Payments to capital = RKc = 150 Shoe: . Sales revenue = PsQs = 120 . Payments to labor = WLs = 90 . Payments to capital = RK's = 30 The production function for computers is: Qc = L&KL-a and the production function for shoes is: Qs = 16KI-8 1. Which industry is capital-intensive?(2pts) 2. Compute a and B.(3pts) Now the Home country opens up to trade, and experience the following price changes: . Percentage increase in the price of computers = p APC = 15% . Percentage increase in the price of shoe = AP's = 0% 3. Can you infer from the above information, in which industry does the Home country has comparative advantage? If not, list the information you need in order to identify comparative advantage. (5pts) 4. After trade, the production of which industry decreases?(2pts) 5. Will WLc/PcQc change after trade? What about RKc/ PcQc?(5pts) 6. Given the percentage changes in output prices above, calculate the percentage change in the wage, AW/W, and the percentage change in rental rate, AR/R. (hint: use the results from the previous part) (8pts) 7. Which factor gains in real terms, and which factor loses? Are these results consistent with the Stolper-Samuelson theorem?(5pts)Consider the following data for two industries within the Home country in autarky. Computers: 0 Sales revenue = PCQC = 250