Question

These questions help you review the Introduction and the Ricardian model. 34 points (2 points each, except 5 and 12, which are 4 points each). For each statement, determine whether it’s T/F, and then explain why.

Questions 5-15 are based on the following Ricardian model. Labor Force Marginal Product of Labor Shirts Apples MPLS = 2 MPLA = 5 MPLS* = 1 MPLA* = 2 Home Foreign L=100 L* = 240 5. Draw the PPF for the Home country. Please label both intercepts and the slope of the PPF. (4 points) 6. The opportunity cost of apples in terms of shirts is 1/2 in the Foreign country. 7. If MPLA* doubles (from 2 to 4), then the opportunity cost of apples in terms of shirts will decrease by 50% in the Foreign country. 8. In the closed-economy equilibrium, 1 shirt sells for 5/2 apples in the Home country.

Answer 1

Solection : File 5. L=100, MPLS = 2 . This means total production of shirts 12200 MPLA:5: This means total pooduction of applis = 100*5 = 500 Putting shirts on Y -axis and apples on x-axis - shirts for our slope of PPF = 20 = co 200 PPF for home corentry 1 100 200 300 400 500 apples 6. True. Because one unit of labour produces 2 apples of 1 shist. opportunity cost of apple = { shist 7. True. when MPLA=4, opportunity cost of apples = 1 shirt which is 50-4. less than 1 shirt (previous opportunity cost). 8. True . opportunity cost of one shirt - apples which is also - the selling price.