16.5 The country of Podunk produces only wheat and cloth, using as inputs land and labor. Both are produced by constant returns-to-scale production functions. Wheat is the relatively landintensive commodity.

a. Explain, in words or with diagrams, how the price of wheat relative to cloth (p) deter mines the land-labor ratio in each of the two industries.

b. Suppose that p is given by external forces (this would be the case if Podunk were a

"small" country trading freely with a "large" world). Show, using the Edgeworth box, that if the supply of labor increases in Podunk, the output of cloth will rise and the output of wheat will fall.