trade? 8. Draw a relative supply-relative demand diagram like in Figure 3-3 of the textbook to represent the equilibrium of the problem above using the above unit labor requirements numbers and the above free trade price ratio. Explain how the interaction of the relative supply and relative demand determine the free trade price ratio. (IEHWRicardo4.doc) End of document 3. Consider two countries, the United States and India, producing two commodities, food and clothing. The United States needs one and a half hours of labor to produce a unit of food and one hour to produce a unit of clothing. India needs three hours of labor to produce a unit of food and one hour to produce a unit of clothing. The United States is endowed with 800 hours of labor while India is endowed with 1000 hours of labor. 5. Let the free trade equilibrium price ratio be 2/5 (price of clothing over the price of food). (Note that the free trade price ratio is between the two autarky price ratios.) (Since only relative prices matter, you may set the world price of food equal to one.) What are the amounts of food and clothing produced, consumed, exported, and imported by each country? Show that trade is balanced for each country. Draw a diagram for each country showing the free trade equilibrium. How does this demonstrate gains from trade