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