$1)$ This exercise recaps what you $($hopefully$)$ have learned earlier in courses on International Economics: Why, and under what circumstances, are international specialization and trade beneficial? Assume two countries exist, denoted G and F$,$ which produce two goods, W and B$.$ If country G devotes all its resources to making B$,$ the output would amount to $8$ units. If G would only produce W$,$ it could make $2$ units. Any non$-$negative linear combination of these maximum amounts is possible as well. F could produce up to $5$B or up to $10$W $($or any linear combination$).$ Consumers in both countries prefer to consume identical amounts of B and W$.$

a$)$ Draw the individual transformation curve of each country in a diagram $($with B on the vertical, W on the horizontal axis$).$

b$)$ Determine the equation of the transformation curve of each country.

c$)$ Which country has a competitive advantage in what?

d$)$ Derive the optimal production and consumption plan for each country. What is the optimal world production?

e$)$ Determine the world transformation curve if both countries engage in specialization and trae $($assuming zero transaction cost$).$

f$)$ Derive algebraically the optimal world production plan. Compare your result to that from d$).$

g$)$ Assume the same consumption ratio as in d$)$ and compare the production and consumption plans of both countries with$/$without specialization and trade. Derive the trade volumes and the terms of trade.

h$)$ Discuss the results and the limitations of the Ricardo model.