Hi I have a question to answer on a third year International Economics Assignment.

The question is:

1. Many reasons for why the United Kingdom voted to leave the European Union have been proposed. A common one is that imports from the EU hurt low-skilled British workers. Suppose that there are two industries, financial services and manufacturing. Further assume that there are two factors of production, low- skilled and high-skilled workers, and that finance is high-skill intensive and manufacturing is low-skill intensive. Further assume that the United Kingdom is abundant in high-skill labour.

1

1. a)Show using the Heckscher-Ohlin model of international trade how relative wages for low-skilled and high-skilled workers are determined when the UK is a member of the EU (i.e. when there is free trade between the UK and the rest of the EU). Explain your answer. (10 marks)
2. b)Now suppose that the UK leaves the EU. For simplicity, we will model this as autarky (i.e. that all trade between the UK and the EU stops). How do real wages of low-skilled and high-skilled workers change (remember that the UK is abundant in high-skilled labour)? Explain your answer. (10 marks)
3. c)Describe also how the relative output of financial services versus manufacturing in the UK changes with Brexit. Explain your answer. (10 marks)

Thankyou so much