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Suppose that both guns and roses are produced under perfectly competitive conditions with labor as the only input. Consider the following productivity information for the countries of Axl and Axeen:

	Output per labor hour
	Guns	Roses
Axl	2	12
Axeen	3	24

Calculate the opportunity cost of each gun for each country.

Calculate the opportunity cost of each rose for each country.

If there were trade in guns and roses between these two countries, what pattern of trade would you expect to see? Briefly explain your answer.

2.	In the 1950s and 1960s, the U.S. was an exporter of automobiles, and domestic auto firms and the United Autoworkers (UAW) labor union were strong advocates of free trade. Since the 1970s, the U.S. has been an importer of automobiles, and domestic auto firms and the UAW have become opponents of free trade.
	a.	Use a domestic market supply and demand diagram for automobiles to illustrate why domestic auto producers have reversed their position on free trade. To simplify, assume that the United States is a small country in the global market for automobiles and that the only change in the global automobile market has been a drop in the global price of automobiles.
	b.	Consider the overall welfare of the U.S. with and without free trade in automobiles. Did the claim that "What's good for GM is good for the country" make economic sense when the U.S. was an auto exporter? What about now when the U.S. is an auto importer? Use your diagram from part a to support your answers.

3.	Debate has increased lately about whether U.S. benefits from globalization might be declining with the rising rate of production of higher skilled goods and services abroad.
	a.	Suppose that the U.S. is a large-country exporter of computer programs to the rest of the world (ROW). Use a trade market supply and demand diagram for computer programs to depict an initial free trade equilibrium in which the U.S. exports computer programs to the rest of the world. Label the U.S. gains from trade in your diagram.
	b.	Now suppose that the rest of the world has made investments over time in physical and human capital. Foreign skill levels abroad have therefore increased, including the ability of the rest of the world to produce computer programs. Could the result be a decline in U.S. gains from trade? Use your diagram to support your answer.

What makes it possible for "high-paid U.S. workers" to compete with "cheap foreign labor"?

Consider the following quote by economist John Culbertson: "International... competition...shifts our desirable high-skilled industries and jobs to other countries." Is this statement consistent with the Heckscher-Ohlin model? Why or why not?

Consider the following results from a survey given in the U.S. and in Latin America.

1998 Public opinion survey: Are you for or against the creation of the Free Trade Area of the Americas?
	U.S.	Latin America
Favor	49%	70%
Oppose	36%	16%

If many respondents in both the U.S. and Latin America consider themselves to be relatively unskilled workers, is the pattern of these survey results consistent with the HO model? Explain briefly.

In 1991, economists Martin and Kathleen Feldstein asserted that, with NAFTA, "American workers would benefit from the increased supply of lower-cost Mexican products." If "workers" refers to unskilled labor, do they end up benefiting from NAFTA according to the Heckscher-Ohlin model?

5.	In class, we covered several types of gains from trade. Suppose that, in the future, all countries converge to equal factor endowments.
	a.	Which sort(s) of gains from trade would disappear? Explain briefly.
	b.	Which sort(s) of gains from trade would remain?