Problem
Now consider a more realistic scenario where China and Britain can produce either machines or textile, and both goods are considered to be differentiated goods. There are two factors of production, skilled and unskilled labour, and machines are considered to be relatively more skilled labour intensive. Endowment-wise, Britain has a higher skill labour ratio, relative to China.
a) Discuss the motive of inter-industry trade between China and Britain, and what the expected trade pattern is. Explain your answers carefully and illustrate intuitions behind any theorems that you cite in your answer.
b) Discuss the distributional effect on welfare in Britain from both interand intra-industry trades.