There are two countries, Alpha and Beta. One worker in Alpha can produce 5 shirts per day or harvest 10 bushels of tomatoes. One worker in Beta can produce 8 shirts or harvest 12 bushels of tomatoes. Suppose initially Alpha and Beta are in Autarky.

a) Make a table with unit labor requirements for each country and product.

b) Which country has the higher standard of living and why?

c) What are the relative prices of shirts/tomatoes in the two countries. For Alpha, explain why one good is more expensive than the other. Now, assume Alpha and Beta engage in free trade.

d) What arbitrage should take place? Explain the pattern of trade that results and its impact (just provide the direction of change, not magnitudes) on output and prices.

e) Compare the wage in Alpha relative to the wage in Beta. First, describe in words on what that depends. Second, give a range of values between which that relative wage could fall. Suppose now that the technology in Alpha is the same, but now one worker in Beta can produce 8 shirts or harvest 16 bushels of tomatoes.

f) How does your answer to part d) change?