1. Suppose there are two countries, the USA and Brazil, and two products, coffee and coffee makers. It takes 10 units of labor per unit of capital to produce a pound of coffee, whereas it takes 2 units of labor per unit of capital to produce a coffee maker. The USA is endowed with 60 units of labor and 10 units of capital, whereas Brazil has 20 units of labor and 60 units of capital.

a. (one point) If trade takes place consistent with the Heckscher-Ohlin theorem, which country will export coffee? Why?

b. (one point) The figure below shows the Brazilian economy before it began to trade with the USA. Point A represents the production and consumption points for coffee and coffee makers. Draw on this figure the production and consumption profile after Brazil starts trading with the USA. (Use the answer to 1a to determine the products Brazil imports and exports.) Draw the world price line and label it "WPL," then label the new production point for Brazil "B." (You don't have enough information to know the exact tangent point or slope, point B need simply be on the correct side of the PPF vis--vis point A. Draw a second indifference curve and then add a point "C" to show where the new consumption point for Brazil should approximately be.