Consider a Heckscher-Ohlin world with two countries (Japan and Ireland), two goods (Cameras and Linen), and two factors of production (labor(L) and capital(K)). Both factors of production are used in the production of each of these goods. Suppose the K/L ratio used to make linen is less than the K/L ratio used to make cameras. Also, the ratio of total capital to labor in the economy is higher in Japan than Ireland. Assume that Japan and Ireland have the same preferences and technology.
a. Which good is K-intensive? Which good is L-intensive?
b. Which country is K-abundant? Which country is L-abundant?
c. Draw the RD and RS diagram. Show each country's RS curve. Which country should have a lower relative wage?
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