Econ 331 – Homework 1Due in class September 22Please make sure that the answers are written in your own words.Ricardo Model:The problems below require the use of the following information. There...

Econ 331 – Homework 1Due in class September 22Please make sure that the answers are written in your own words.Ricardo Model:The problems below require the use of the following information. There aretwo countries H (Home) and F (Foreign) that can produce two goods, coffee and donuts. Thefollowing data describes the endowment and technologies:HFαcoffee23αdonuts12L1002001. Show the PPF-Budget Constraint-Indifference curve diagram for H and for F in an autarky(no-trade) equilibrium. Label the intercepts of the PPF and Budget Constraint for eachcountry and indicate the price of coffee in terms of donuts (provide numbers). Consider aninternational equilibrium with free trade between H and F. Suppose that in this free tradeequilibrium that all the gains from trade go to H.2. Show the PPF-Budget Constraint-Indifference curve diagram for H and for F in this free tradeequilibrium. Make sure to label the intercepts of the PPF and Budget Constraint for eachcountry and indicate the price of coffee in terms of donuts (provide numbers). Also indicatethe difference between the production and consumption levels in H & F (no need for numbers).Explain how your diagrams show only H gains from trade.3. Show the relative supply – relative demand diagram depicting the international equilibriumfor the information above. Provide numbers where you can. The next two problems ask youto analyze how technology shocks change the equilibrium that you analyzed in questions 2and 3.4. Suppose that the marginal product of labor in H for both goods doubles. Show how this shockaffects the welfare of consumers in F. Cover the range of possible outcomes (but no need fornumbers). Use the relative supply – relative demand diagram in your answer.15. Suppose that a natural disaster in H lowers the marginal product of H labor in coffee to 41coffeefrom 2 to 4). How does this shock affect welfare in H relative tofrom 2 (i.e. increases αHthe initial free trade equilibrium? Explain.1