Question 1.Assume 2-country (home and foreign) 2-factor (labor and capital), 2- good (clothing and software)Heckscher- Ohlin model. Clothing is relatively labor-intensive good. The maximum amount of clothinghome country can produce is 10 and the maximum amount of software home country can produce is 12.a. Draw the production possibility frontier for home country. (Have the quantity of clothing on thehorizontal axis.b. If the price of clothing is 2 and the price of software is 4, draw an Iso-value line which gives themaximum value of production in home country.c. Using the diagram from parts a) and b) find the production point in home country before trade.d. Redo parts (a), (b) and (c) when the price of software decreases to 2.

In the 2-factor, 2 good Heckscher-Ohlin model, the country with a relative abundance of ________ willhave a production possibility frontier that is biased toward production of the ________ good.A) labor; labor intensiveB) labor; capital intensiveC) land; labor intensiveD) land; capital intensiveE) capital; land intensive

5. In the 2 factor, 2 good Heckscher-Ohlin model, the production possibility frontier is kinked whenA) a country does not engaged in tradeB) the opportunity cost of production is constantC) there is no factor substitution in productionD) there are unemployed factor resourcesE) transportation cost are very high.

In the 2-factor, 2-good Heckscher-Ohlin model, an influx of workers from across the border wouldA) move the point of production along the production possibility curve.B) shift the production possibility curve outward, and increase the production of both goods.C) shift the production possibility curve outward and decrease the production of the labor-intensiveproduct.D) shift the production possibility curve outward and decrease the production of the capital-intensiveproduct.E) shift the possibility curve outward and displace preexisting labor.

The Heckscher-Ohlin model assumes that there are two countries, each of which produces two goods(say manufactures and agriculture) using labor and capital. Which of the following is an additionalassumption of the Heckscher-Ohlin model?A. The ratio of the quantity of labor to the quantity of capital is different for each nation, resulting indifferent “endowments” of capital and labor.B. One nation has larger quantities of both capital and labor than the other country.C. Capital is a specific resource in producing manufactured goods, and labor is a specific resource inproducing agricultural goods in each country.D. Labor and capital can move between countries

Consider Home and Foreign in a Ricardian world (includes all the assumptions of the Ricardianmodel). Each country produces two goods, wine and cotton. Each country has 4,800 labour hoursavailable. The accompanying table shows the number of hours required to produce one unit ofeach good in each country. Answer the following questions using the information given by thetable:a. What is the opportunity cost of cotton in each country? Show your work.b. Draw the graph of the production possibility frontier (PPF).c. Which country has an absolute advantage in Wine? Explain your answer.d. Which country has a comparative advantage in Wine? Show your work and explain your answer.e. Which good does each country produce and export when the equilibrium international relativeprice of wine in terms of cotton is 1?f. Suppose the equilibrium international relative price of wine in terms of cotton is 1. Draw the graphof the production possibility frontier (PPF) for each country when they trade. Show how the twocountries can benefit from free trade. Explain your answer and fully label your graph to get marks.g. Draw the world relative supply (RS) of wine. Fully label your graph to get marks (Do not drawthe world relative demand (RD) of wine yet).h. Now, suppose that the world relative demand is drawn such that the equilibrium internationalrelative price of wine is at 1. Draw the world relative demand curve of wine on the diagram above(in part g). Explain which country (countries) benefit(s) (most) from free trade in this case.i. Now, suppose that the world relative demand is drawn such that the equilibrium internationalrelative price of wine is at 1.25 (=5/4). Draw the world relative demand curve of wine on thediagram above (in part g). Explain which country (countries) benefit(s) (most) from free trade inthis case.j. Calculate Home country’s relative productivity of labour in each sector.k. Suppose that the price of wine is $10 per bottle and the price of cotton is $10 per bushel. Calculatethe relative wage in Home (the wage of Home relative to the wage in Foreign). Show your workand explain your answer.l. Show the relative wage in Home lies in between the relative productivity of labour of two sectorsusing the information you obtained from parts j and k.Wine CottonHome 6 8Foreign 5 4