Question 1. (10 points): This question is based on Ricardian Model. Label all the point on your graphs.

Assume two countries Dryland and Portland use labor to produce two goods, Carts and Boats. In Dryland, 1 worker can produce 7 Carts and 5 Boats, while in Portland 5 workers can produce 25 Carts and 50 Boats.

1. Which country has comparative advantage in the production of which good (Cart or Boat) and why? What is the autarky (no-trade) relative price of Cart in each country?
2. Suppose Dryland has two workers and Portland has three workers. What are the production possibilities (PPF) and autarky equilibriums in each country?
3. What is the lowest relative price (trade price) of Cart Dryland is willing to accept to engage in trade with Portland? What will be the pattern of trade?
4. For each country, calculate the real wage in terms of carts and boats and compare with the real wage in terms of either good in the no-trade equilibrium.
5. Now, suppose Portland has 30 workers while Dryland has the same 2 workers. Determine the new terms of trade (TOT). Are the gains from trade different than before (part-D)? Which country gains more from trade and why?