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2 (10 Points). Consider the following numerical example to highlight how endowment differences between two countries affect production patterns and trade patterns. Suppose the following set of input-output coefficients: Factor Requirements per Unit of Outpu Labor Capital Clothing a LC 2 a KC = 1 Food a LF=1 a KF = 3 Suppose endowments for Home country is: L = 300 K = 200 Suppose endowments for Foreign country is: L* = 200 K* = 300 Suppose the price of food is $10 in both countries before and after trade. Assume that the world price of clothing after trade is $10. Since home country is relatively more labor-abundant, their equilibrium autarky clothing price was $8 while foreign country's equilibrium autarky price was $12. (a) Compute home country's before-trade wage rate and rental rate:w. r= (b) Compute Foreign country's before-trade wage rate and rental rate:W* (c) Compute after-trade wage rate and rental rate for Home Country and Foreign country. Home Country: W = . Foreign Country: w= (d) Which factor benefits from moving autarky to free trade in Home and Foreign country? Home Country: Capital Labor Foreign Country: Capital_ Labor_ 2 (10 Points). Consider the following numerical example to highlight how endowment differences between two countries affect production patterns and trade patterns. Suppose the following set of input-output coefficients: Factor Requirements per Unit of Outpu Labor Capital Clothing a LC 2 a KC = 1 Food a LF=1 a KF = 3 Suppose endowments for Home country is: L = 300 K = 200 Suppose endowments for Foreign country is: L* = 200 K* = 300 Suppose the price of food is $10 in both countries before and after trade. Assume that the world price of clothing after trade is $10. Since home country is relatively more labor-abundant, their equilibrium autarky clothing price was $8 while foreign country's equilibrium autarky price was $12. (a) Compute home country's before-trade wage rate and rental rate:w. r= (b) Compute Foreign country's before-trade wage rate and rental rate:W* (c) Compute after-trade wage rate and rental rate for Home Country and Foreign country. Home Country: W = . Foreign Country: w= (d) Which factor benefits from moving autarky to free trade in Home and Foreign country? Home Country: Capital Labor Foreign Country: Capital_ Labor_

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