2] Suppose Home has 200 units of labor. It can produce two goods, apples and bananas....

Transcribed Image Text:

2] Suppose Home has 200 units of labor. It can produce two goods, apples and bananas. In Home a worker can produce 3 apples or 4 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 5 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: QA QB PB PA 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? 2] Suppose Home has 200 units of labor. It can produce two goods, apples and bananas. In Home a worker can produce 3 apples or 4 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 5 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: QA QB PB PA 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?