3. The Heckscher-Ohlin Model Trade Between Two Countries. Your answer to this question should be qualitative and motivated by graphical analysis. We look at trade between Japan and China. Consumers in the two countries have identical, homothetic preferences over two goods, textiles (t) and electronics (6). The two goods are produced using labor (L) and capital (K) as inputs, according to the following production functions: a 1 Y5 : K8414? where Ye (Yt) denotes the output produced in the electronics (textiles) sector, K,3 (Kt) denotes the amount of capital used for electronics (textiles) production, and L6 (L3) denotes the amount of labor used for electronics (textiles) production. The technologies described by the production functions are common across countries. The factor endowments of the two countries are given by: E0 : 1000 ; K0 : 200 E1 = 100 ; K1 = 200. (a) In two separate graphs, draw qualitative pictures describing the production possibility frontier of China and the one of Japan. Put production of e on the horizontal axis, and production of t on the vertical axis.2 (b) What can you say about the relative prices under autarky in the two countries (E)? c Now China and Japan open to trade. What can you say about the relative rice under P free-trade? Describe the pattern of trade. For each country, draw a picture indicating the production possibility frontier, the equilibrium under autarky and the equilibrium under free-trade. (d) Does opening to trade necessarily imply complete specialization? Why? (e) How does opening to trade affect factor prices? Explain the intuition behind your answer. (f) Who gains and who loses from trade liberalization