1. Consider two countries, Vietnam and China, producing two goods, textiles and televisions. Suppose that textile is relatively labor-intensive. Vietnam has 20 units of capital and 16 units of effective labor and China has 300 units of capital and 150 units of effective labor.

a. Which country is relatively capital-abundant? Explain.

b. Which country will export textiles? Explain.

c. In Vietnam the production of which good decreases under trade? In China?

d. In China, is the relative price of televisions higher with or without trade? Explain.

e. Which group benefits from trade in China? In Vietnam?

2. Suppose Jamaica and trades in sugar and steel with other countries such as Canada, Mexico & the United States. Use the following data for the sugar and steel sectors in Jamaica to answer the questions:

Sugar:         Sales revenue: P_S . Q_S = 80

Payments to labor: W . L_S = 80

Payments to capital: R . K_S  = 40

                        Percentage increase in the price: D P_S / P_S  = 25%

Steel:           Sales revenue: P_B . Q_B = 80

Payments to labor: W . L_B = 30

Payments to capital: R . K_B = 60

                        Percentage increase in the price: D P_B / P_B  = 0%

a. Which industry is labor intensive? Explain.

b. Give the percentage change in the rental on capital and percentage change in wage.

c. Compare the magnitude of the percentage in the rental on capital with percentage change in wage in part (b). Use notational format.

d. Identify the factor that benefits from trade in real terms. Which factor loses?