Question: Hi! Im having trouble solving this question, I would really appreciate some help! Thank you! Question: Consider a specific factor model with two regions (EU

Hi! Im having trouble solving this question, I would really appreciate some help! Thank you!

Question: Consider a specific factor model with two regions (EU and Vietnam) and two goods, "new" (N) and "old" (O). There are three production factors: high-education labor (H), basic-education labor (B) and capital (K). Good N is produced with high-education labor and capital and good O is produced with low-education labor and capital. Assume that Vietnam has a relatively more basic-education labor and thus exports good O to EU.

a) Assume that technological progress in Vietnam lowers the price of O. Illustrate the effect of this lower price of O on production, consumption and welfare in EU using a figure with a production possibility frontier. What is the overall effect on welfare in the EU?

b) In a figure with the allocation of capital on the horizontal axis across the two sectors (analogous to figure 7 in Friberg (2020)) show the effects of the fall in good O on the allocation of capital across sectors. What are the effects of the fall in good O on income of basic-education labor and on income of high-education labor in EU?

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