This problem set is designed to help you master the concepts and tools covered in class so far. The first part looks at the trade theory. The second part requires you to manipulate real data in excel and apply to the concepts used in class. Please place your answers to ALL questions in one word/pdf document as this is the document that will e graded. You are also asked to provide your excel file, but the excel file will ONLY be referred to in the event that your answers to part 2 in the word/pdf document are incorrect and we need to decide if part marks should be given. We will NOT look for answers in your excel file. 2/4 t is your responsibility to ensure that your answer files are downloadable and readable. Please che your files. If you have any issues or concerns, please email the instructor. Part 1 Theory Questions related to Modules 3-5 (45 points) Question 1 Apply the trade model we have learnt in class to the following scenario: Two countries, China (C) and ndonesia (1) produce two goods, sneakers (S) and electronics (E) using unskilled labor and capital. Production of electronics is intensive in capital and production of sneakers is intensive in unskilled labor. China is relatively more abundant in capital (and skilled labor), than Indonesia which is relatively more abundant in unskilled labor. a. Explain the difference between factor intensity and abundance? Which country will produce which good and why? (4 marks) b. Explain why P/P < P/P? (3 marks) c. Explain (using graphs) how the production possibility frontiers of China and Indonesia differ and why? (4 marks) d. A key point of the H-O model is that while the country gains from trade, not all factors within the country gain from trade. Explain, using a graph, why unskilled workers gain more than owners of capital in Indonesia as a result of trade? (Hint: explain any shifts in the curves, as well as the initial and resulting equilibriums. Label everything clearly.) (8 marks) Consider now, a Chinese firm that produces sneakers. The sneaker firm's value chain involves a series of teps: 1. design shoe (skilled labor intensive) 2. source raw materials: rubber and textiles (unskilled labor intensive) 3. transform them into semi-finished goods: converting raw materials into shoe making materials and cutting the materials into the required shapes (unskilled labor intensive) 4. assembly: transform cut materials into finished goods (unskilled labor intensive) 5. brand and distribute goods for final consumers (skilled labor intensive) e. Based on what you found above, what does the H-O model predict will happen to the Chinese sneaker firm? Explain. (2 marks) f. To produce a sneaker fixed proportions of rubber and textiles are required. What type of production function would you use to characterize the production of sneakers using only these two intermediate inputs? Why? (4 marks) g. Explain how consumers' love of variety could lead the Chinese firm to export sneakers? (6 marks) h. What is offshoring? Explain how this could be used by the Chinese sneaker firm to compete with the Indonesian sneaker manufacturers? What should the firm offshore and why? (6 marks) i. The Chinese sneaker firm is planning to build a factory in Indonesia to transform and assemble sneakers. Using a graph, explain how the building of a factory might impact trade between Indonesia and China. Does this lead to import-biased or export-biased growth in Indonesia? (8 marks)