Consider a Ricardian model. There are two countries calledAustraliaandNew Zealandand two goods called beer and cheese. InAustraliathe unit labour requirement for a beer is 6 hours and for a cheese is 12 hours. InNew Zealandthe unit labour requirement for a beer is 4 hours and for a cheese is 1 hour.Australiahas an endowment of 3600 hours of labour.New Zealandhas an endowment of 400 hours of labour.

1. Suppose now that we have trade between the countries and the world price is 1 cheese for 1 beer. For each country draw in the budget constraint. For each country label the production point on the diagram. (5 marks)
2. While the ratio of prices is apparent from Question 1, we will assume from here on that the price of beer is $1 and the price of cheese is $1. If 300 beers are consumed inNew Zealand, how many cheeses will be consumed inNew Zealand? Now if only 200 beers are consumed, how many more cheeses will be consumed? (4 marks)
3. For both countries calculate the hourly wage rate (with international trade). (2 marks)