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Suppose that there are two countries (Germany and Italy) two goods (computers and food) and two...

Suppose that there are two countries (Germany and Italy) two goods (computers and food) and two factors of production (skilled and unskilled labor). Also, assume that Germany is skilled-labor abundant while Italy is unskilled-labor abundant. Suppose further that computers are skilled-labor intensive and food is unskilled-labor intensive. What will happen to the wage of skilled labor relative to the wage of unskilled labor in each country following trade liberalization?

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Ans. In Germany , the wage of Skilled labor would increase as compared to the unskilled labor then before because skilled labor would also be demanded in Italy while food would no longer be scarce in Germany.

In Italy , the wage of Unskilled labor would increase as compared to the skilled labor then before because unskilled labor would also be demanded in Germany while computers would no longer be scarce in Italy.

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