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1. (Standard Trade Model) Assume there are two countries (home vs. foreign) in the world and two commodities (banana vs. honey) could be produced by
1. (Standard Trade Model) Assume there are two countries (home vs. foreign) in the world and two commodities (banana vs. honey) could be produced by these countries. The pro- duction possibility frontier for home and foreign are countries are given below respectively: Q +dQ=T, m(Q1)2 +n(Qm)2 = K, where Q6 and Qh represent banana and honey production at home and Q6 and QH rep- resent banana and honey production at foreign country. Assume preference of the repre- sentative household in the home country (not foreign) is as below: u(Dc, Df) = Dy + Din = where Db, Dh represents banana and honey consumption respectively. Choose the numer- ical values yourself for parameters c, d, T, m, n, and a such that c>0, d > 0, m > 0, n > 0, T > 0, c# m, d #n, and 0 0, d > 0, m > 0, n > 0, T > 0, c# m, d #n, and 0
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