Q. In autarky, Country P was producing at point 5. With trade, could its production point be found above or below point 5? Explain why. What must happen in the K/L intensity ratio in the production of each of the products in this country when going from autarky to free trade?

Answer: The aim of production with trade will be above point 5 and the country will be shifting its production composition to be supplementary heavily weighted in labour intensive good, within every industry, the production technique will be supplementary capital intensive, since with the increasing relative wage, the best point of production will involve sliding around the isoquants in the direction of saving on the now comparatively more expensive labour.