Consider a Heckscher-Ohlin model with two countries (the U.S. and Mexico), two goods (computers and pencils), and two factors of production (high skilled labor and low skilled labor). Suppose that computers are intensive in high skilled labor and the U.S. is abundant in high skilled labor. Finally, suppose that the U.S. and Mexico are not "too" dissimilar in their endowed high-skilled labor to low- skilled labor ratio so that both countries always produce both goods.

1. Which country exports what? How do we know?
2. How would opening up to trade would aect the consumption and production pencils and computers in the United States? Show using a gure (i.e. graph) that shows the production possibilities frontier for the U.S. and consumer indierence curves. Is the equilibrium world price of computers to pencils higher or lower than the autarkic price in the U.S.?
3. In the U.S., what kind of worker is made better o by trade and who is made worse o? How do you know?
4. Show using a gure (i.e. graph) how the change in the relative price of computers to pencils you found in part (b) aects the aggregate relative factor demand curve for high versus low skilled workers in the U.S.