In the context of the Heckscher-Ohlin model with the two production factors capital and labor, we have discussed that industries differ in their labor and capital-intensities.

(a) Define labor and capital-intensity of an industry.

(b) Explain what we mean when we assume that there are no factor intensity reversals. Illustrate the case of a factor intensity reversal using a suitable diagram.

(c) Human activity, particularly the production and consumption of energy-intensive goods and the associated emissions of carbon dioxide into the atmosphere, is a major factor driving global warming. Therefore, the European Union will introduce a carbon border adjustment mechanism (CBAM) in the near future. Imagine a variant of the HeckscherOhlin model with two production factors labor and energy used in two industries. Define labor and energy intensity of an industry in such a model. Can you think of examples of an energy-intensive industry versus a labor-intensive industry?