HW #$2-$ Chapter $3($Similar to Book Chapter Problem #$8,$ Pg $46)$

Submit in Canvas! You can do by hand and take pic and upload file.

$($Look at end of this handout for HW tips and suggestions$)$

Consider Ricardian example, using standard Ricardian assumptions:

$\backslash$table$[[,$Labor Hours per Bottle of Wine,Labor Hours per Kilogram of Cheese$],[$Vintland$,10,5],[$Moonited Republic,$5,2]]$

Vintland has $20$ million hours of labor in total per year.

Moonited Republic has $10$ million hours of labor per year.

a$)$ Which country has an absolute advantage in wine? In cheese?

b$)$ Which country has a comparative advantage in wine? In cheese?

c$)$ Graph each country's production$-$possibility curve. Show the no$-$trade production point for each country, assuming that with no trade Vintland consumes $1$ million kilos of cheese and Moonited Republic consumes $2$ million kilos of cheese. $($tip: see Lectures $3$ and $5)$

d$)$ When trade is opened, which country exports which good? If the equilibrium international price ratio is $\frac{1}{2}$ bottle of wine per kilo of cheese $($or $0\mathrm{.}5\frac{W}{C}),$ what happens to production in each country?

e$)$ In this free$-$trade equilibrium, cheese and wine are traded. Explain who trades what and show graphically where the trade line starts for each country with free trade? $($tip: see Lecture $5,$ Slide $7)$

f$)$ Does each country gain from trade? Explain, referring to your graphs as is appropriate.