Model Questions 1. North Korea has decided to open up trade relations with the rest of the world (W). Their economy consists of a mobile factor: labor. It also uses two specific factors, computers and machines to produce two products, robots (r) and coal (c) respectively. Suppose the world relative price of robots is lower than the autarky relative price in North Korca a. Make a diagram that compares the autarky and trade equilibrium for North Korea. Using the diagram, which good will North Korea export and which good will it import? [10pts] b. Make a diagram that shows how the allocation of total labor in North Korea, L, is split between robot production, Ly, and coal production, Lc. Use the diagram to determine how the allocation of labor will shift with the opening of trade and how the real wage change in North Korea in terms of robots? In terms of coal? [10pts] c. Overall, what can we say about the change in welfare for North Korean laborers if trade liberalized? [10pts] d. How does the opening of trade impact the real returns to the specific factors, computers and machines? (5pts] e. If more labor is allocated to one of the specific factors does the marginal productivity of that factor increase, decrease, or stay the same? [5pts]