In the Heckscher-Ohlin model, suppose that the computer industry is intensive in capital
and that the price of computers increases (other prices do not change). We can conclude
Welfare for both capital owners and workers increases but the welfare of capital
owners increases even more
Welfare for both capital owners and workers increases but the welfare of
workers increases even more
Welfare increases for capital owners and decreases for workers.
Welfare increases for workers and decreases for capital owners.
These next three questions are worth 4 points each:
In the Ricardian model with free trade, the fact that the Home country specializes in
sector A and does not produce in sector B implies for the Home country wages: