Consider a Heckscher-Ohlin (H-O) model in which the two countries are the United States (USA) and China (CHN); the two factors of production are skilled labor or "human capital" (H) and ordinary labor (L), which receive wagesW_HandW_L; the two goods are jet airplanes (A) and electronic devices (E). You may assume that the USA is skilled-labor (H) abundant.

1. Draw the relative demand (RD) for skilled labor curves for the two goods (Hint: put relative factor suppliesH/Lon the horizontal axis, and the relative wageW_H/W_Lon the vertical axis). Which one is further to the right, RD for airplanes (A) or electronics (E)?
2. On a separate diagram of this type for each country, show the economy-wide average relative demand for skilled labor and indicate which way it shifts in each country as a result of trade (and briefly explain why it shifts that way). What is the predicted impact on the relative wageW_H/W_Lin the USA? in China?
3. Which groups (L and H workers in each country) do you expect to gain and which ones to lose as a result of free trade, according to this model? To support your answer:
4. Analyze what happens to absolute wages in terms of both goods (WH/PE, WH/PA, WL/PE, and WL/PA) using the relevant marginal productivities of skilled and unskilled labor (MPH and MPL for E and A). State which theorem you are applying here.
5. Also show the direction of change in the ratios in the following equation, which equates the relative supply of the factors to the relative demand: