1. Assume that there are two goods (textiles and computers) and two countries (developing and developed) with different endowments in skilled and unskilled labor. Based on the Heckscher- Ohlin model:

a. Separately for each country, graphically explain and show the economys production possibilities frontier and indifference curves, illustrate a situation where the world price of textiles relative to computers is such that the developing country exports textiles and imports computers. Explain, why is the developing country exporting textiles and not computers?

b. Suppose that the world relative price of textiles in terms of computers increases. Explain and illustrate on diagrams, like the ones in part (a), how this change in the relative price is likely to affect the consumption and production of the two goods in both countries, and hence the exports/imports of each good.

c. Explain the distributional consequences of the changes described in (ii) both types of laborers.

Make sure to label axes, relative ratio of prices and indifference curves.