1. The economy of Pennsylvania can produce grapes and hardwood lumber (such as black cherry, red maple, red oak, and sugar maple). You notice that the price of forest-land and logging machines are high, while the price of labor is low. Explain, using the Heckschler-Ohlin model, what causes the price differences. Which good, grapes or hardwood, do you predict Pennsylvania has the comparative advantage in?
2. When an economy is under autarky the price of eggplant is $5. The world price of eggplant is $3.50. If opened to the world market, would consumers or producers benefit? Would consumers or producers lose? Explain your reasoning (using a graph would be beneficial).