We are under the setting of HO model. Assume home and foreign have the same labor endowment (L=L*) and foreign has a larger capital endowment than home (K

(Note that homothetic preference means that given price, increase in income will induce the same proportion increases in consumptions of goods.)

(1)

In two separate figures, show the production possibility frontiers of home and foreign. Also show the autarky equilibrium points in the two countries.

(2)

We now allow the two countries to free trade. The free trade equilibrium price is in between of the autarky equilibrium prices in the two countries,