Consider a Specific Factors model with two tradable sectors: manufac-

tures and services. There are three factors of production: workers with college

degrees, workers with associates degrees or high school diplomas, and manual

laborers with no education. Explain in a few words.

a)First set up the model in a way that will guarantee college educated

workers gain from trade and high school educated workers lose from trade

when the US exports services and imports manufactures. Show how trade

impacts the economy (all quantities and prices, including factor rewards) un-

der these circumstances.

b)Next, explain what can be said about the utility levels of all three groups

before and after trade? What should happen to the same groups in Home`s

trading partners, where manufactures are the export sector?