we produced goods and services using factors that were specific to a particular economic sector.However, as we discuss in the current lesson, in the long-run, it is more reasonable to assume that factors of production are mobile across economic sectors.Therefore, the Heckscher-Ohlin model starts with the assumption that two goods are produced with the same two factors of production.For our purposes, let us call the two goods apples and computers and the two factors of production labor and capital.

One of the important vocabulary words that we learned in this lesson was factor-intensity.Assume that, in the home country autarky equilibrium, it takes 2 units of labor and 1 unit of capital to make a batch of apples.On the other hand, it takes 10 units of labor and 10 units of capital to make one computer.The home country has 2000 units of labor and 1000 units of capital.

COMPUTERS are the capital-intensive good andapples are the labor-intensive good.

Also assume that, in the home country autarky equilibrium the price of computers is $80 while the price of a batch of apples is $10.

Given this information, what can we say about the MPL in the computer industry relative to the MPL in the apple industry?

If the opening to trade has this effect on the relative wage, then the amount of labor used relative to capital in any given industry will _________.

The real wage paid to workers in terms of apples that can be purchased will------------.The real wagein terms of computers that can be purchased will-----------------.(Expectedanswers:"increase"or"decrease")

The real return to capital in terms of apples that can be purchased will-----------.The real return on capitalin terms of computers that can be purchased will----------------.(Expectedanswers:"increase"or"decrease")