Problem 2:Heckscher-Ohlin Model

Suppose that a free-trade equilibrium exists in a two-country, two-good, two-factor world. Assume that the two goods, Artificial Intelligence Services (S) and Cloth (C), both employ skilled and unskilled workers, and that both factors are perfectly mobile across sectors. Also assume that:

• The United States is relatively skilled labor-abundant
• Mexico is relatively unskilled labor-abundant.
• Artificial Intelligence Services are relatively skilled labor-intensive.
• Cloth is relatively unskilled labor-intensive.

Does the effect of free trade on the real wages of unskilled workers (w_u/PS and w_u/PC) in MX:

Increase or Decrease?

(use given information above)