Question: Consider a Heckscher-Ohlin model with two countries (Home & Foreign), two goods (Cloth & Food), and two production inputs (L and K). In equilibrium

Consider a Heckscher-Ohlin model with two countries (Home & Foreign), two goods

Consider a Heckscher-Ohlin model with two countries (Home & Foreign), two goods (Cloth & Food), and two production inputs (L and K). In equilibrium (with free trade), the prices are Pc = 14 and PF = 8. At these equilibrium prices, the labor and capital requirements of producing one unit of cloth is aLc = 2 and akc = 4. The labor and capital requirements of producing one unit of food is aLF = 2 and akF 1. Numbers in the table below are factor endowments of each country. = Home Foreign L 60 30 K 90 30 (A) (5%) Which country is labor abundant? Which country is capital abundant? (B) (5%) Which product is labor intensive? Which product is capital intensive? (C) (10%) What are the wage of labor (w) and interest of capital (r)? (D) (10%) What are the output levels of cloth and food in Home? In Foreign? (E) (5%) What products does Home export and import? How about Foreign?

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