Question: Heckscher-Ohlin (30 Points) Let's consider now a two countries (H and F) two goods (1 and 2), two factors (K and L) model of

Heckscher-Ohlin (30 Points) Let's consider now a two countries (H and F)

Heckscher-Ohlin (30 Points) Let's consider now a two countries (H and F) two goods (1 and 2), two factors (K and L) model of trade with constant return to scale and perfect competition. Demand is identical in the two countries. Cost minimization implies the following unit cost functions: 1 ci(w,r) C(w,r) = = Zero Profit Conditions are wall (w.r)+rak (w,r) way (w,r)+rak (w,r) P = c(w,r) P2 C(w,r) The full utilization of resources implies: + L (1) ED 53 (3) (4) (6) 1. Use the zero profit conditions in the two industries to obtain a relation between r and w. Graph it in a (w, r) space under the assumption that good 1 is relatively intensive in labor. 2. State the Stolper-Samuleson theorem and show it graphically in a space (w,r) under the assumption that good 1 is relatively intensive in labor.. 3. Now suppose that country H is relatively abundant in its capital endowment compared to country F (

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