2.Take the numerical example below.

Draw the world production possibility frontier. (Hint: To do so, ask yourself what world output would be for all possible international prices (Pc/Pw)t). Now assume that both countries consume wine and clothing in equal proportions (i.e., their utility function is of the form U(c,w) = min {c,w}. Wine (w) and clothing (c ) are perfect complements) Now indicate on the graph the exact point on the world production possibility frontier at which the world consumes. Compare that point to the world consumption point before trade and before specialization.

As you notice, there are indeed gains from trade.

The question left is whether a world with free trade is the best of all possible worlds. Convince yourself that it is actually not always the best case. Allow for international mobility of labor. In other words, workers are free to decide where they want to work (at home or abroad). Show us how the production possibility frontier will look like in this case. Convince yourself that indeed, under this scenario, the world is better off than in the case of free trade. Now when you consider the international division of production (i.e., where goods will be produced) with internationally mobile labor, would you say that it is in line with the principle of comparative advantage? Discuss.

My questions here are bolded, and especially the part with international mobility of labor.

I do not understand why the workers would move to Home country. Also, I really need help with the question in the last paragraph!

Thank you in advance.

Country A(Home) Country B(Foreign) good X 2 good Y 3 4 Also, many students are asking questions about the labor endowment of #2. So I specify the exact amount of labor. Labor endowment in Home country is 6 and foreign country is the same