Question

Suppose Home has 300 units of labor. It can produce two goods, apples and bananas. In Home a worker can produce 3 apples or 5 bananas. a. Graph Home's PPF, with apples in the horizontal axis. b. What is the opportunity cost of apples? c. In the absence of trade – when Home is isolated ‐ what would the relative price be? d. Now suppose there is another country, Foreign, with a labor force of 200. In Foreign a worker can produce 2 apples or 10 bananas. e. Graph Foreign's PPF, with apples in the horizontal axis. f. Construct the world relative supply curve, expressing the relative price of apples (PA/PB) in terms of the relative quantity of apples (QA/QB). g. Now suppose that world relative demand takes the following form: RD: ொಲ ொಳ ൌ ௉ಳ ௉ಲ (Hint: this is just the inverse function.) h. Graph the relative demand curve together with the relative supply curve. i. What is the equilibrium relative price of apples? j. Describe the pattern of trade (who exports what). k. Assume Home workers are less productive in both industries. What happens (conceptually) to the gains from trade for each country compared to before?

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Answer 1

and SounoP Foreign has 200 unit ơe îabor . Each aorker Can Dradu ce applce or la bannas Soi ic the laborif used onty bo produce apple the Forein (ouoty would be a ble to Pvduce 200 X2。Чоо. Soiic the labor is used onl to produCe bonen, the Foreigh country would to able to prod to 200 x 102000 Banna ppffor APele