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Question: the heckscherohlin model home and foreign have two production factors...

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The Heckscher–Ohlin model. Home and Foreign have two production factors, skilled and unskilled labor and produce two goods, textiles and computers. Home is skilled labor abundant, and computers are skilled labor intensive. Starting from a situation of autarky, the two countries liberalize trade. Assuming that the two countries produce both goods before and after trade liberalization, answer the following questions:

(a) What is the effect of trade liberalization on the relative price of computers at Home and in Foreign?

(b) What is the effect of trade liberalization on the output of computers and textiles at Home and in Foreign?

(c) What is the effect of trade liberalization on aggregate welfare in the two countries?

(d) What is the effect of trade liberalization on the real factor returns in Home and Foreign? Please provide a graphical explanation for your argument. What is the name of this famous result?

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