Question

(a) [12 marks] Draw a specific-factors diagram with the origin for mining in the bottom left and the origin for autos in the bottom right respectively. Illustrate an initial allocation of workers across the two industries and use your diagram to calculate the nominal wage, w. For this part, you can assume that the country’s firms are able to offshore production, so that the total endowment of labour available to them is 96. Hint: recall that in an equilibrium in the specific-factors model, there are two mathematical conditions that need to hold.