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Heckscher-Ohlin Model Consider two countries, Spain and Italy, where the only two factors of production are...

Heckscher-Ohlin Model

Consider two countries, Spain and Italy, where the only two factors of production are capital and labor. Spain has 100 units of capital and 400 units of labor and Italy has 200 units of capital and 100 units of labor. Both countries produce two goods, cheese and suits. The labor share in total production costs is 75% for cheese but only 25% for suits.

C. What will happen to the relative price of cheese in Italy when the two countries open up to trade?

D. What will happen to the wage to rental rate ratio in Italy after opening up to international trade?

E. What will happen to the labor to capital ratio in the Italian cheese sector?

Math %'s to prove also.

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