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l. (25) Suppose the United States and China are the only two countries in the world making cars and food. Suppose that everyone in the
l. (25) Suppose the United States and China are the only two countries in the world making cars and food. Suppose that everyone in the world spends half their income on each good. Suppose there are 10 units of skilled and 14 unskilled labor in China and 14 units of skilled labor and 10 units of unskilled labor in the US. The technology is such that at any factor prices, cars are intensive in their use of skilled labor. You can use the skilled and unskilled unit labor requirements in the two goods, cars and food, given in the table below. Factor/Good F 0011] Cars Skilled 1 2 Unskled 2 1 a. What do you expect will be the effect of allowing trade between the US and China? What will each country export and why? b. What will happen to the price of cars relative to food in the US through trade? What will happen to the price of cars relative to food in China through trade? 0. What happens to the real income of the two factors in each country with trade? Why? d. Can trade explain the increase in the skilled wage relative to the unskilled wage that has occurred worldwide in both countries? What else might be able to do so
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