1. Let L^A = country A's endowment of labor = 200 units; L^B = country B's endowment of labor = 100 units; a_LX = number of units of labor required to produce one unit of good X in country A = 4; a_LY = number of units of labor required to produce one unit of good Y in country A = 8; b_LX = number of units of labor required to produce one unit of good X in country B = 5; and b_LY = number of units of labor required to produce one unit of good Y in country B = 4.

• Draw the production possibilities frontiers (PPF) for each country. Be sure to label carefully.
• Which country has comparative advantage in which good? Why? What would the theory of comparative advantage predict about the direction of trade? Why?
• If free trade according to the principle of comparative advantage were allowed, what degree of productive specialization would occur? Why? How much of each good would be produced?

2. Now let L^A = 200; L^B = 300; a_LX = 4; a_LY = 2; b_LX = 5; and b_LY = 4.

• Draw the production possibilities frontiers (PPF) for each country. Be sure to label carefully.
• Which country has comparative advantage in which good? Why? What would the theory of comparative advantage predict about the direction of trade? Why?
• If free trade according to the principle of comparatve advantage were allowed, what degree of productive specialization would occur? Why? How much of each good would be produced?

3. The United Kingdom (UK) and the United States produce wine and cloth. At their respective autarkic equilibrium, the unit prices of the two goods are given in the following table:

Product	U.K.	U.S.
Wine	2 pounds sterling	4 dollars
Cloth	6 pounds sterling	24 dollars

a. Which country has a comparative advantage in the production of wine? In the production of cloth? Why?