Two countries home and foreign ,use one factor, labor to produce two goods, coats and shoes, C and S. the labor requirements in the home country are: 1 hours of labor to produce one coat, 1 hours to produce a pair of shoes. The labor requirements in the foreign country are: 8 hours of labor for coats and 2 hours for shoes. The labor supply are L= 100 hours at home and L* = 200 hours in the foreign country. Preferences are identical in the two countries.

1. Which country has an absolute advantage in producing coats? Which country has a comparative advantage in producing coats?
2. Imagine the two countries are allowed to trade. Draw the world relative supply curve (in terms of S/C). For which price range will both countries specialize. What is the world production of coats and shoes when Ps/Pc is in that range? What happens if Ps/Pc is not in this range?