Consider a Ricardian world in which there are two countries (Home and

Foreign) and two goods (1 and 2). The Foreign country production possibilities

frontier is given by Y1+y2= 10 and the Home country production possibilities

frontier is given by 2y1+ Y2= 10, whereYi and Yi represent the output of good i

produced in the Foreign and Home country respectively. Demonstrate the gains from free trade relative to autarky: (i) on a diagram and (ii) by demonstrating that the purchasing power of Home country workers is higher under free trade than under auturky