Suppose that each worker in Home can produce 2 pound of cheese or 3 gallons of wine. Assume that Home has 40 workers.
a. Graph the production possibilities frontier (PPF) for Home? What is the no-trade relative price of cheese in Home? Why?
b. Suppose that each worker in Foreign can produce 1 pounds of cheese or 2 gallons of wine. Assume that Foreign also has 40 workers. Graph the PPF for Foreign? What is the no-trade relative price of cheese in Foreign?
c. In which good does Foreign have a comparative advantage, and why?