Consider an economy in which two factors of production , (labor and capital), produce two goods, (capital intensive pharmaceuticals and labor-intensive clothing). Suppose that both factors of production are freely mobile across both industries andthat all of the other assumptions of the H-O model are satisfied. Suppose thatthere are currently steep tariffs on all imported goods, but there is a bill before Parliament to eliminate those tariffs and the government has invited citizen representatives of workers and capitalists to express their opinions on the matter. Suppose that all citizen representatives understand the consequences of eliminating thetariffs, and that each representative simply wants to maximize hisor her real income. The parliamentary takes testimony from four groups representing workers in the clothing industry, capitalistsin theclothing industry, workers in the pharmaceutical industry, and capitalists in the pharmaceutical industry.
(a)Which of these four groups do you expect to support elimination of the tariff and which do you expect to oppose elimination of the tariff if this economy is capital-abundant relative to the rest of the world? Why?
(b)How would your answerto the above questionchange if both capital and labor were assumed to be sector-specific? Why?