Suppose there are two countries: A and B. Each country can produce manufacturing goods (M) using labor (L) and capital (K) and food (F) using labor (L) and land (T). The only difference between these two countries is that the supply of land in country A is lower than the supply of land in county B

a. Plot both countries PPF on the same graph. Illustrate why the two countries PPFs are different.

b. Show graphically the labor allocation in each country.

c. Which country has comparative advantage in producing M?

d. Now assume these two countries start trading.

i. What happens to the relative price of manufacturing in country A?

ii. What happens to the allocation of labor in country A?

iii. Are capital owners better off in country A?

iv. Are land owners better off in country A?

v. Are workers better off in country A?