Question: Consider the standard Heckscher - Ohlin model with 2 factors (labor and capital) and two goods (Garments and Trucks). The production of garments is labor

Consider the standard Heckscher - Ohlin model with 2 factors (labor and capital) and two goods (Garments and Trucks). The production of garments is labor intensive, and truck's production is capital intensive. Assume Country A is a "small" country trading freely with the rest of the world (i.e. Country A is trading at fixed world prices) and exporting trucks. Evaluate the effects of a gift of capital from the rest of the world on:

There are 2 commodities (beef and cars), 2 specific factors (land and capital) and one mobile factor (labor). The production of beef (qB) uses land (T) and labor (LB), while the production of cars (qC) uses capital (K) and labor (LC). Assume the country of Japania is a "small" country relatively well endowed with capital

1.Real returns of labor and capital

2. Quantities of garments and trucks produced.

(Use diagrams and complete explanations)

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