1. Suppose there are only two countries in the world: Chile 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, and can be represented by the following equations:

PPF Chile: C = 1800 - 6W

PPF US: C = 4800 - 12W

1. Draw each country's PPF. What is the slope of each PPF if wood (W) is on the vertical axis? What does this slope measure?
2. What is the opportunity cost of producing a unit of wood in the US? How about in Chile?
3. Which country should specialize in wood? Which country should specialize in cotton? Why?
4. What is the interval between in which the relative price of wood must be for trade to be mutually beneficial?
5. Under what condition is the US indifferent to trade? Does Chile still benefit from trade under that condition? Why or why not?