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Problem: Assume that, in the Specific Factors Model, a small open economy initially exports cloth, C....

Problem:

Assume that, in the Specific Factors Model, a small open economy initially exports cloth, C. Analyse the effects of a fall in the price of F (Food), holding the price of C constant on:

(i) Cloth and food

(ii) The real wage of labour

(iii) The real rental price of capital in the Cloth industry

(iv) The quantity of Cloth exported.

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