Question

3. Home has 1.200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3. while in banana production it is 2. Foreign has 800 units of labor available. Foreign's unit labor requirement in apple production is 5. while in banana production it is 1. a Graph the production possibility frontier for Home and the production possibility frontier for Foreign Please put Apples on the y axis. Now suppose world relative demand takes the following form: Demand for apples/demand of bananas - price of bananas/ price of apples, i.e.. Qa/QbPb/Pa, in which Qa and Ob include both Quantity demanded from Home and Quantity demanded from Foreign b. Construct the world relative supply curve and the world relative demand curve. What is the equilibrium relative price of apples?

Answer 1

Home can produce apples=1200/3=400

Home can produce bananas=1200/2=600

Foreign can produce apples=800/5=160

Foreign can produce bananas=800/1=800

Ppt (Momo 600 beng nas OPPF(foreign Dapur 800 bananas

B) opportunity cost of producing apples in home=600/400=1.5

At apple world price =1.5, apple relative world supply=400/800=0.5

Opportunity cost of producing apples in foreign=800/160=5

World relative supply,

world relative supply nelabve Bruela 0.5 relative Supply / Demand quantity (app2020

Relative demand,given,Qd(apple)/(Qd(bananas)=pb/pa=1/world relative of apple

At price =1.5 relative demand=1/1.5=2/3=0.66

At price =2 relative demand=1/2=0.5

At p=1 , relative demand=1/1=1

By joining these point we can derive relative demand and equilibrium price.

world relative supply world. equilibruin selective Xovelap o wond relative dememe 0.5 0.66 selutive supply / Demand quantity (apple) Demo

So equilibrium relative price=2

Answer 2

Home: 1,5 bananas is the opportunity cost of one apple

Foreign: 5 bananas are the opportunity cost of one apple