(Solved): Problem 1: Consider a Ricardian model where two countries, Domestic and Foreign, produce cookies \ ...

Problem 1: Consider a Ricardian model where two countries, Domestic and Foreign, produce cookies \( (C) \) and hot chocolate \( (H) \). 1.1. Solve the missing values for the no-trade equilibrium in the table below. 1.2. Using your solutions to \( 1.1 \), which country has a comparative advantage in which good? 1.3. Suppose that the relative world price is \( P_{H}^{W} / P_{C}^{W}=7 / 10 \). Which good will each country export? 1.4. Assuming that \( P_{H}^{W} / P_{C}^{W}=7 / 10 \), what are real wages in terms of each good in each country in the free-trade equilibrium? 1.5. Are workers better off before or after trade?