Suppose Home has 2,000 units of labor available. It can produce two goods, clothing (C) and wheat (W). The unit labor requirement in clothing production is 5, while in wheat production it is 2.

Home is as described above. Now suppose there is another country, Foreign, with a labor force of 3,000. Foreign's unit labor requirement in clothing production is 2, while in wheat production it is 4.

(a) Which country has an absolute advantage over the other in clothing production? Which has a comparative advantage over the other in wheat production?

(b) What and how much do Home and Foreign produce, respectively, when the world relative price of clothing is 0.5, i.e., pC/pF = 0.5.

(c) What is the range for the relative price of clothing under free trade?

(d) Suppose the world relative price of clothing under free trade is 2, i.e., pC/pF = 2. Describe the pattern of trade between Home and Foreign.

(e) Show that both Home and Foreign gain from trade at pC/pF = 2.