Assume that Home and Foreign produce only two goods - Cars and Tvs. Home has 900 units of labour available. In Home, the unit labour requirement in car production is 6 and in TV production it is 2. On the other hand, Foreign has 1800 units of labour available. Foreign's unit labour requirement in car production is 18, while in TV production it is 3.

h. Show that both Home and Foreign gain from trade.

i. Suppose that the number of workers increases from 900 to 1800 in Home. Find the new equilibrium relative price. What can you say about the efficiency of world production and the gains from trade between Home and Foreign in this case?

j. Suppose that Home has now 1800 workers, but they are only half as productive in both industries as we have been assuming. Consider Foreign to have the initial 1800 workers only and the same productivity in both industries. Construct the world relative supply curve and determine the equilibrium relative price. How do the gains from trade compare with those in the case described in problem h.