Question : Please answer

2. Suppose that a country has comparative advantage in cloth relative to wheat. Assume that there are two types of capital, looms (KLooms) to manufacture cloth and tractors (K Tractors) to cultivate wheat. In the short run, these are specic factors, as looms cannot be used to cultivate wheat nor tractors be used to weave cloths. Assume there is a xed quantity of these specic factors and that labor is perfectly mobile between these two sectors. (a) Is labor better off or worse off after Opening to trade? (3 points) (b) Are 100m owners better off when opening to trade? Are tractor owners better off? (3 points) (c) Suppose that after ve years (long run), all looms and tractors must be replaced. Hence, capital is now mobile between the two sectors. Assume that the country is capital abundant and cloth is the capital intensive sector. Are capital owners better off after trade? Is labor worse off? (3 points)