Suppose that Mexico and Canada produce two goods, electrical equipment parts and wheat. Assume that land is specific to wheat, capital is specific to electrical equipment parts, and labor is mobile between the two industries in both Mexico and Canada. If Mexico and Canada engage in trade, the relative price of wheat (P_W/P_E) will increase in Canada and the relative price of wheat (P*_W/P*_E) will decrease in Mexico.

If the price of wheat (P*_W) decreases and the price of electrical equipment is unchanged ( P*_E =0) in Mexico, explain the effects on changes in wages ( W ), changes in rental on land ( R_T /R_T) , and changes in rental on capital ( R_K /R_K) in Mexico.

Draw a graph and use equations to explain the changes in the real wages, real rental on land, and real rental on capital.

Rank the percentage changes in wages, price of electrical equipment parts, price of wheat, rental on land, and rental on capital in ascending order.

R_K /R_K , R_T /R_T , P_E/P_E , P_W/P_W , W/W