Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky), Home's daily production is 20 tons of wheat and 10 tons of corn. Suppose that, after trade occurs, the international price actually becomes 1.5 bushels per yard.
Required:
At which international price will Home's gains from trade be largest?
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Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant...
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