Consider the H-O model studied in class (all the standard assumptions hold). There are 2 commodities (garments and trucks) and 2 mobile factors (labor and capital). The production of garments (qG) is labor intensive while the production of trucks (qT) is capital intensive. Assume the country of Japania is a small country relatively well endowed with capital. Use complete explanations/diagrams to answer the questions below.

Autarky

A. Draw a diagram for Japania and identify a plausible autarky point and price ratio (use the horizontal axis for trucks). Effects of the movement from Autarky to Free Trade for Japania Assume now Japania starts trading freely with the rest of the world

B. Show how commodity prices ( pT/pG ) and the production bundle change.

C. Show how the ratio of input prices w/r changes using the relevant diagram.

D. Will the owners of capital be in favor or against free trade? You need to show how the real return to capital in terms of both goods change when the country goes from Autarky to Free Trade.