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(16 points) In the Heckscher-Ohlin model studied in the slides, where C is capital-intensive, Home is labor-abundant, there is no factor...
(16 points) In the Heckscher-Ohlin model studied in the slides, where C is capital-intensive, Home is labor-abundant, there is no factor substitution, and both countries are incompletely specialized:
(a) Suppose the labor endowment at home increases. Discuss how this will impact the wage relative to the returns to capital at home
i. when both countries are open to trade
ii. when both countries are closed to trade
(b) Suppose that labor migrates from Foreign to Home. How does the relative price under free trade change?
(c) Suppose that it costs τ% of the price of a good to ship it between countries. Is w/r larger, smaller, or the same as w∗/r ∗ ? Why?
