Consider trade between two countries that have the following unit labor requirements for the production of cheese and wine as well as endowment of labor (L): Home Foreign ac= 20 ac = 16 aw = 5 aw = 2 L = 800 L = 160 a) Which country has an absolute advantage in cheese and which in wine? Which country has a comparative advantage in cheese and which in wine? What are the relative prices of cheese (Pc/Pw) at Home and in Foreign assuming they are in autarky (closed economies)? b) If consumer preferences are given by U( Xc , Xw ) = X xw . find the equation for the relative demand curve (xc/xw). Use this to find the free trade price if both countries engage in free trade. Would both countries gain from trade