Question: a. Using Figure 2-5, show that an increase in the relative price of wheat from its world relative price of 2/3 will raise Home's utility.

a. Using Figure 2-5, show that an increase in the relative price of wheat from its world relative price of 2/3 will raise Home's utility.

b. Using Figure 2-6, show that an increase in the relative price of wheat from its world relative price of 2/3 will lower Foreign's utility. What is Foreign's utility when the world relative price reaches 1, and what happens in Foreign when the world relative price of wheat rises above that level?

Cloth, Qc (yards) Slope =-1 50 40 US Slope -2/3 25 F U1 Slope-1/2 40 50 100 Wheat, Qw (bushels) Cloth, o (yards) 100 8 C* 60- Slope =-23 A* U2 US 50 60 100 Wheat, Q(bushels)

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