a. Consider a small open economy Atlantis, under the Specific Factors Model. The economy can produce only two goods: wheat and cloth. The specific factor for wheat production is land and the specific factor for cloth production is capital. The labor is the mobile factor used in both industries. Analyze the effects on the output of the two goods, wheat and cloth and the real wage of labor if Atlantis experiences an increase in its stock of labor. b. Now, consider the same economy of Atlantis, under the Heckscher-Ohlin model. In this case, the production of wheat and cloth require both labor and capital. Wheat is more labor intensive and cloth is more capital intensive. Analyze the effects on the output of the two goods, wheat and cloth and the real wage of labor if Atlantis experiences an increase in its stock of labor.
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a. Consider a small open economy Atlantis, under the Specific Factors Model. The economy can produce only two goods: wheat and cloth. The specific factor for wheat production is land and the specific factor for cloth production is capital. The labor is the mobile factor used in both industries. Analyze the effects on the output of the two goods, wheat and cloth and the real wage of labor if Atlantis experiences an increase in its stock of labor.
b. Now, consider the same economy of Atlantis, under the Heckscher-Ohlin model. In this case, the production of wheat and cloth require both labor and capital. Wheat is more labor intensive and cloth is more capital intensive. Analyze the effects on the output of the two goods, wheat and cloth and the real wage of labor if Atlantis experiences an increase in its stock of labor.
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