Part I. Heckscher-Ohlin Model and Stolper-Samuelson theorem 1. Suppose that there are drastic technological improvements in shoe production at Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for the Home country: Computers: Sales revenue = Pc X Qc = 100 Payments to labor = W X Lc = 50 Payments to capital = Kc X R = 50 Percentage increase in the price = _APC = 10% PC Shoes: Sales revenue = Ps X Qs = 100 Payments to labor = W X Ls = 25 and Payments to capital = Ks X R = 75 Percentage increase in the price = = APS = 20% PS a. Which industry is capital-intensive? Explain b. Based on the relative price change, which good does home country export? Explain c. Based on Heckscher-Ohlin theorem, is home country capital-abundant or labor-abundant? Explain. Which factor of production will gains from trade based on Stolper-Samuelson theory? d. Given the percentage changes in output prices above, calculate the percentage change in the rental on capital and percentage change in wage of labor. How does the magnitude of percentage change in rental compare with that of labor? e. Calculate the real rental percentage change and real wage percentage change. Which factor gains in real terms, and which factor loses? Are these results consistent with the Stolper-Samuelson theorem