Question 1. Examine the validity of the following statement justifying your claim:
Cross-country differences in technology do not play any role in Krugman’s model of international trade with
economies of scale.
Question 2. Using the following disaggregated data (in tables 1 and 2) on a three-sector
(Z1, Z2 and Z3) three-factor (unskilled labor, semi-skilled labor and skilled labor) hypothetical
economy show, without violating any assumption of the Heckscher-Ohlin-Samuelson model of free
and frictionless international trade, that a country’s exports can be relatively intensive in unskilled
labor even if the country is relatively abundant in skilled labor:
Table 1: Unit Labor Requirements
Unskilled labor Semi-skilled labor Skilled labor
Z1 3 1 4
Z2 2 0 1
Z3 0.5 3 1
Table 2: Output & Price
Country output World output Price
Z1 8 12 1
Z2 16 68 1
Z3 5 52 1