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Uniform technological progress in the Dornbusch-Fischer-Samuelson model

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Uniform technological progress in the Dornbusch-Fischer-Samuelson model. This problem is an application of the model we have seen in class, taken from the article by Dornbusch, Fisher and Samuelson (AER 1977), henceforth DFS. (a) Based on DFS model, show what happens to relative wages, consumption, and the range of goods imported and exported by each country when only the Foreign country experiences a technological improvement of that affects proportionally all goods. Also, what happens to welfare of the Home country and of the Foreign country? (Hint: show what happens to the relative wage in terms of each good)

(b) Do the same analysis for a technological change that affects both countries and that brings about the same percentage decrease in the unit factor requirements for all goods in both countries. (In other words, what happens if a (z) and a* (z) fall by the same proportion?) P.S. If it makes answering the question easier, you can assume that in both parts (a) and (b) technological improvement means a 10% reduction in the unit labor requirement for the corresponding goods.