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Question 6. Suppose that the Home and Foreign countries produce shoes (S) and computers (C) using capital (K) and labor (L). Technology is the same across the two countries. Computer production is capital-intensive, and shoe production is labor-intensive. Home is capital abundant while Foreign is labor abundant. Suppose that trade decreases the relative . P . . price of computers, P', in Foreign. 5' a. Use the following diagram to show the effect on the wage relative to the rental price of capital in Foreign. (5 points) Wage] rental W/R f/ I? Labor/capital b. Continue using the above diagram. What happens to the labor-capital ratio in each industry in Foreign? Show and explain. (5 points) c. Show that workers are better off after the change in the relative price of capital (Hint: Use your answer in (b) and the fact that the wage is determined by the marginal product of labor and the price of each good, i.e., W = PC * MPLC and W = P5 * MPLS). (5 points)