Is anyone can solve this question?
This problem asks you to think of issues using a relative demand and sup- ply framework more generally. The U.S. and the “rest of the world”(ROW) are the two countries in the world. They make two goods, Food (F) and Wine (W) The U.S. exports W:
a: What would be the e¤ect of an advertising campaign to promote W in the ROW? ( Assume that the advertising campaign makes foreigners demand more W relative to F at any relative price.) What would shift? What would happen to relative prices in the world? Would the U.S. gain or lose from such advertising if advertising is essentially costless?
b: A war destroys half of ROW’s productive capacity shrinking its Production Possibility Frontier (PPF) uniformly inwards for all goods. What would shift? What would happen to prices in the world? Would the U.S. gain or lose? What about ROW?
c: Suppose that the US consumes mostly wine while the rest of the world consumes mostly food. Would there be a secondary burden of foreign aid given by the US to the ROW? Could the US reduce this secondary burden by giving its aid in barrels of wine? Why/Why not?