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Problem 2: Consider a Heckscher-Ohlin setting where two countries, Domestic and Foreign, pro- duce cookies (C) and hot chocolate (H). The production of both

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Problem 2: Consider a Heckscher-Ohlin setting where two countries, Domestic and Foreign, pro- duce cookies (C) and hot chocolate (H). The production of both goods requires only high-skilled and low-skilled labor, both of which are freely mobile across industries. Suppose that by opening up to trade, the price of cookies in Domestic falls by 10%, and the price of hot chocolate does not change. Use the information below to answer 2.1. Industry Cookies Cookies Cookies Variable Sales Revenue High-Skilled Labor Payments Low-Skilled Labor Payments $300 $200 $100 Hot Chocolate Sales Revenue $200 Hot Chocolate Hot Chocolate High-Skilled Labor Payments $40 Low-Skilled Labor Payments $160 2.1. By what percent does the wage rate to high-skilled labor change? To low-skilled labor?

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