Suppose Home is a small country which imports manufacturing and exports agricultural goods. Manufacturing industry uses less labor and more capital relative to agriculture. Foreign manufacturing Orms have invested into Home country, which increased the amount of manufacturing capital available at Home.

(a) 5% Using relative supply and relative demand for labor analysis, illustrate on a diagram the original equilibrium for Home country (before Foreign invested into Home). Show equilibrium relative wage (relative to return on capital) and equilibrium labor-capital ratios in each sector.

b) 5% Using the same diagram as in part (a) show the new short-run equilibrium. Explain what happens to RD and RS curve in the short run as Home countryis capital stock rises. What is the short-run effect on relative wage?

(c) 5% Using the same diagram as in part (a) show the new long-run equilibrium. Explain what happens to RD and RS curve in the long run as Home countryis capital stock rises. What is the long-run eect on relative wage?