1. Assume that N1 and N2 are neighbors and that N1 is relatively human and physical capital abundant while N2 is relatively labor abundant. What would you expect to happen to the ratio of college graduate wages to high school wages in N1 after these two nations begin trading with each other? What about in N2? Explain why.

2. From question #1, if both nations suddenly erect trade barriers such as tariffs and quotas, which nation will experience a tendency for capital inflow and which nation will experience a tendency for labor inflow? Explain. If both nations reduce trade barriers and again begin to trade but now N1 exports goods into N2, but N2 has little to export into N1, what will be the nature of capital and labor flows between the two nations? Explain your reasoning.

3. In terms of a firms MRP of labor, explain why the firm will only hire the next worker if that worker can make the firm money.

4. For rice production, why might labor productivity among workers in some southeast Asian countries be lower than labor productivity in Arkansas (Note: Arkansas exports the 4th largest amount of rice in the world).

5. As a means for less developed countries to attract the savings and investment necessary for economic growth and development, is short-term portfolio investment better than Foreign Direct Investment? Explain.

6. If international trade increases prices, employment, and wages among more competitive and efficient producers but has the opposite effects among less competitive and efficient producers, why should anyone listen to opponents of international trade? Explain.

7. In the U.S., what factor(s) other than international trade have driven up the wages of college graduates relative to those of high school graduates?