International trade

2. The following questions focus on the Rybczynski theorem. (a) (30 points) State the theorem and illustrate it graphically. Why is this theorem important in the context of the HeckscherOhlin model? (b) (30 points) Suppose that at current factor prices cloth is produced using 20 hours of labor for each acre of land, and that food is produced using only 5 hours of labor per acre of land. Answer the following questions: 0 Assume that the economy's total resources are 1200 hours of labor and 120 acres of land. Determine the allocation of resources between two goods, Food and Manufacturing. Please provide a numeric answer. 0 Now assume that, holding factor prices fixed, the labor supply increases first to 1600, then to 2000 and finally to 2400 hours. Using the Edgeworth box for production, trace out the changing allocation of resources. 0 What would happen if the labor supply were to increase even further? (c) (40 points) Miami experienced a large inflow of foreign workers in the early 1980's, but economists uncovered only very limited effects on the labor market outcomes of the native population. Can you use the Rybczynski theorem to rationalize this findings? How? Explain your argument carefully