Question 2 (Heckscher-Ohlin Model) Consider the Heckscher-Ohlin Model. Suppose there are two countries, Home and Foreign, two goods, Good A and Good B, and two factor inputs capital and labor. Suppose Home is more labor abundant than the Foreign and Good A is more capital intensive than Good B. (a) Let's denote the Home endowment of capital and labor using K and L, and the foreign endowment using K* and L*, respectively. What's relationship between L/K and L*/K* given that Home is more labor abundant than the Foreign? (b) Suppose capital and labor are substitutable for production and firms can choose the mix of inputs. Draw a figure indicating the relationship between the labor-capital ratio (L/K) and wage-rental ratio (w/r) for each good (Note that Good A is more capital intensive than B). (c) Draw a figure showing the relationship between relative demand and relative supply of Good A versus Good B in the Home country and the Foreign. Denote the relative supply curve as RS at Home and RS* in the Foreign, and the relative demand curve as RD. (d) According to the Heckscher-Ohlin Theorem, which country will export Good A and which country will export Good B if the two countries start trading with each other? Which factor owner gains from trade in the Home country, capital or labor owner