QUE 2 . What happens to the wage relative to rental rate of capital in the Foreign country ? Does the change conform to the Stolper - Samuelson theorem ? 13 . Describe the distributional effects of trade . Who are the absolute winners and losers ? Justify each of your answers a . Capital owners in Foreign ( win , lose or ambiguous ) b . Workers in Foreign ( win , lose or ambiguous ) C . Workers in Home ( win , lose or ambiguous ) d . Capital owners in Foreign ( win , lose or ambiguous )\fEC 481 / 581 Practice Exam Prof . Woan Foong Wong TRADE AND MIGRATION This question explores migration in a two- good Heckscher - Ohlin model . Supposed we have a country Home ) that is endowed with capital K and labor L . It can produce two goods , clothing ( C ) and food ( F ) using its K and I endowment . It takes 4 units of labor and 2 unit of capital of capital to make food ; and it takes 2 units of labor and S units of capital to make clothing . Capital and labor are complements in production of both goods . Home has 160 units of labor and 20 units of capital , while Foreign has 120 units of labor and 120 units of capital . In summary , we have the following information : Technology : Factor Endowments are = 4 Home L = 160 : 1 = 20 = 2 a ke = 5 Foreign : * = 120 ; K* = 120 10 . Given the information above , show which country is capital abundant and which country is labor abundant Show which good is capital intensive and which good is labor intensive . Which product will Home export ? Which product will Foreign export ?1 1 . Now suppose that Foreign is closed to trade but experiences an increase in the labor force through immigration from the Home country . This results in " biased " growth . Biased towards which sector ? What happens to the relative price of clothing in the Foreign country ? Does this change conform to the Rybezynski's Theorem ? Explain