Suppose there are only two countries in the world: Canada and the United States. Suppose further that there are only two goods in the world, cotton (C) and wood (W). Assume that the production possibilities frontier (PPF) for both countries is linear. Canada has 400 workers while United States has 300 workers. A worker in the United States can produce 1 cord of wood or 3 bales of cotton. A worker in Canada can produce 1 cord of wood or 6 bales of cotton.

(a) Draw each country's PPF with W on the vertical axis. What is the slope of each PPF? What does this slope measure and how to interpret it?

(b) Which country should specialize in wood? Which country should specialize in cotton? Why?

(c) Find the interval between which the relative price of wood must fall for trade to be mutually beneficial.

(d) Under what condition is the U.S. indifferent to trade? Does Canada still benefit from trade under this condition? Why or why not?