4. Suppose the Home country produces good X and good Y. Evaluate whether the following statements about the Home country are true or false, and briefly explain your answer. (4 points, 2 points each).

Your answer depends on whether you use the Ricardian model or the specific factors model and 4 responses are possible.

A = True only in the Ricardian model. B = True only in the specific factors model. C = True in both the Ricardian model and the specific factors model. D = True in neither model.

Example: The PPF is a straight line. Answer: A. The PPF is a straight line in the Ricardian model but concave-shaped in the specific factors model.

(1) The labor demand curve of the X industry is downward sloping. (2) As the Home country moves from no trade to free trade, everybody in the Home country gets better off.