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H-O. Suppose there are two goods, x and y, and two factors of production: labor and capital, which are perfectly mobile between the two sectors.
H-O. Suppose there are two goods, x and y, and two factors of production: labor and capital, which are perfectly mobile between the two sectors. Suppose the production technology for y is capital-intensive, and Home is a capital abundant country. When Home opens up to trade: a. The relative price of x (9:) will 4\"\" (increase/decreaseot change). Please briey explain why. b. The relative return to capital (i) will (increase/decreaseot change). Please briey explain why. c. The ratio of labor to capital (i) will (increase/decreaseot change) in (both sectors/only x sector/only y sector). Please briey explain why. d. Please graph the above effects of the change in the relative goods price on relative factor prices and factor input ratios. (Hint: Recall this is the upside down T-shaped graph where the vertical axis is the relative rental rate of capital, %, the right side of the horizontal axis is iand the left side of the horizontal axis is g . y
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