economic

Consider a two-country, two-good world where the countries face increasing opportunity costs. With the aid of ONE well-labeled diagram, show that even if both countries have the same production possibility frontier, they can still gain from trade if their consumption preferences differ (i.e., they have different sets of indifference curves). When answering the question, keep the following in mind: * In your written explanation, describe how both countries can gain from trade and their respective patterns of trade. * Assume Home's consumption preference is skewed towards good X, while Foreign's set of indifference curves is skewed towards good Y. * In your diagram: => Show the indifference curves for both countries before and after free trade. => Identify the autarky equilibrium and free-trade equilibrium for both countries (i.e., the production and consumption bundles). => Label good X on the horizontal axis. => Consider drawing a large diagram for clarity. o