Consider a world that consists of two countries, Domestic and Foreign, in a Ricardian model setting. Suppose Domestic has LD = 100 workers and Foreign has L F = 20 workers. The output that one worker can produce in each country in terms of each good is given in the following table:

	Cloth	Widgets
Domestic	10	20
Foreign	30	60

1) What is the opportunity cost of cloth in Foreign in terms of widgets?

2) Which of the following statements is true?

A Home has a comparative advantage in widgets

B Foreign has a comparative advantage in widgets

C Home has a comparative advantage in widgets and cloth

D Neither country has a comparative advantage in widget

3) What is the total amount of cloth that will be produced in the free-trade equilibrium?

4) What is the total number of widgets that will be produced in the free-trade equilibrium?

5)All else equal, if Domestic workers become twice as productive, Domestic should:

A Sell cloth to Foreign and buy widgets from Foreign

B Sell widgets to Foreign and buy cloth from Foreign

C Sell cloth and widgets to Foreign

D Buy cloth and widgets from Foreign

E Stop trading with Foreign

6)All else equal, how would Domestic's real wages change if LD = 200 due to immigration?

A Real wages would unambiguously rise

B Real wages would unambiguously fall

C Real wages would not change

D The effect on real wages would be ambiguous

For 1.7 and 1.8, suppose the world price is PC/ PW = 1

1.7 What is Domestic's real wage in the free-trade equilibrium in terms of the good they export?

1.8 What is Foreign's real wage in the free-trade equilibrium in terms of the good they import