3. (4 points) Consider the HO model we study in class. In Figure 1, the slope of the p^ represents the home autarky price. CA and YA are the consumption and production choices of the home country, respectively. The curve UA is the utility obtained by the home country at autarky. The foreign country has the same preference, i.e. similar indifference curves. The slope of the p line is a potential free trade price. (a) (3 points) Print out or use electronically Figure 1 and draw on it the following subjects: budget lines for the home and foreign countries, production choices of the two countries (YT and YT*), the consumption choices of the two countries (CT and CT*). Note that facing the same price, the ratio of good 1 consumed to good 2 consumed must be identical in both the home and foreign countries. (b) (1 points) Can the price p7 be an equilibrium price? Y2 PPF* PPF CA = YA = UA p4 Yi Figure 1: For question 3 3. (4 points) Consider the HO model we study in class. In Figure 1, the slope of the p^ represents the home autarky price. CA and YA are the consumption and production choices of the home country, respectively. The curve UA is the utility obtained by the home country at autarky. The foreign country has the same preference, i.e. similar indifference curves. The slope of the p line is a potential free trade price. (a) (3 points) Print out or use electronically Figure 1 and draw on it the following subjects: budget lines for the home and foreign countries, production choices of the two countries (YT and YT*), the consumption choices of the two countries (CT and CT*). Note that facing the same price, the ratio of good 1 consumed to good 2 consumed must be identical in both the home and foreign countries. (b) (1 points) Can the price p7 be an equilibrium price? Y2 PPF* PPF CA = YA = UA p4 Yi Figure 1: For question 3