• Suppose there are two countries, Japan and the Philippines, described by a variable proportions H-O model (i.c.a H-O model). Suppose they produce two goods, rice and chicken, using two factors, labor, and capital. Let rice be capital-intensive and the Philippines be labor abundant.
• a) If these are the only two countries and if they do not trade, explain how the price of rice and chicken will differ between the two countries.
• b) If these are the only two countries and if they do not trade, explain how the wages and rental rates on capital will differ between the two countries.
• c) When trade opens between the countries what happens to the price of rice and chicken in the Philippines?
• d) When trade opens between the countries what happens to the wages and rents in the Philippines?
• e) When trade opens between the countries what happens to the wages and rents in Japan?
• f) When trade is free between the two countries, how do the wages and rents compare between the two countries?
  
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