Question

Consider the following Ricardian model with two countries and two goods, tuna and erasers. Switzerland has 300 units of labor available; the unit labor requirement for tuna is 2 and 6 for erasers. Croatia has 200 units of labor available; the unit labor requirement for tuna is 2 and 4 for erasers. a) What is the opportunity cost of producing a tuna in Switzerland? In Croatia? b) Construct the world relative supply curve. Your Y axis should be la- beled, runa Be sure to label all points of interest. c) What is the lowest equilibrium relative price of erasers in which some erasers would be produced? The relative demand curve is given by: Bruno = 25 - rua trunk d) What is the equilibrium relative price and quantity of tuna? e) How many erasers does each country produce?

Answer 1

from the above values clear that opportunity cost of tuna in swizerland is 0.3 and opportunity cost of tuna in croatia is 0.5 means swizerland will specialize in tuna and croatia will specialize in erazer. it can be further under stood with the help of the world relative supply curve.

2011 Week 31 05 FRIDAY Week 32 217-148 oppmbty unt Tuna LiT L witerlen LYDatia 11 216 12 200 4 2 -0S 2 Ppeialite in Tuna &peuialize Coodedt 3 Evasu Pr PE2 Evening 06 SATURDAY डचरख 218-147 BTT BE B612 6

B) world relative supply curve

e) if swizerland only produce eraser, it will produce 300/6=50 unit

If croatia only produce eraaser, it will produce 200/4=50