Suppose Ireland and Canada produce two goods, Y and X. Assume that good Y is labor-intensive and good X is capital-intensive.

a. Given the above PPFs, which country is relatively labor-abundant? Capital-abundant? Explain

b. Suppose the countries have identical preferences. Show the no-trade equilibrium and the free-trade equilibrium. Be sure to label the production and consumption points for both economies.

c. Which good will Ireland export? What about Canada? Explain.

d. Compare the relative factor prices in the two countries before and after trade.

e. Comment on the overall welfare in both countries.

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Output of Y, Qy Canada Output of X, Clx