What happens to the wage relative to the rental

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Question: 1. Using the information in the chapter, suppose Home doubles in size, while Foreign remains the same. Show that an equal proportional increase in capital and labor at Home will change the relative price of computers, wage, rental on capital, and the amount traded but not the pattern of trade.

2. Using a diagram similar to Figure, show the effect of a decrease in the relative price of computers in Foreign. What happens to the wage relative to the rental? Is there an increase in the labor-capital ratio in each industry? Explain.

Reference no: EM131478753

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