Assume a Ricardian model with two countries, Home and Foreign, that both produce cars and furniture. Home
Question:
Assume a Ricardian model with two countries, Home and Foreign, that both produce cars and furniture. Home has 800 units of labor (L) available. Home’s unit labor requirement in the production of cars is aLC = 4, while in the production of furniture it is aLF=10. Foreign has 400 units of labor (L*) available. Foreign’s unit labor requirement in the production of cars is aLC*=2, while in the production of furniture it is aLF*= 8.
a) Homes's production possibility frontier (PPF) can be described by
QC=a−bQFQC=a−bQF
where QC denotes the output of cars and QF denotes the output of furniture.
Determine the values of a and b.
The value of a is:
The value of b is:
(Round your result to two decimal places if necessary.)
b) Assume Home wants to produce 100 cars. How much furniture can it produce?
If Home produces 100 cars, it can produce........units of furniture.
c) What are the opportunity costs of furniture in terms of cars in both countries?
Opportunity costs of furniture in terms of cars in Home are....... . (Round your result to two decimal places if necessary.)
Opportunity costs of furniture in terms of cars in Foreign are........ . (Round your result to two decimal places if necessary.)
For parts d), e), and f) assume there is free trade and the world price of cars is PTC=2, while the world price of furniture is PTF=6.
d) Which good will be exported by Foreign?
e) The following figure illustrates the world relative supply of furniture in terms of cars.
Determine the values of X and Y, respectively.
The value of X is...... . (Round your result to two decimal places if necessary.)
The value of Y is...... . (Round your result to two decimal places if necessary.)
f) The following figure illustrates Foreign's consumption possibilities with and without trade where QF denotes quantity of furniture and QC denotes quantity of cars. Determine the values of W and Z, respectively.
The value of W is..... (Round your result to two decimal places if necessary.)
The value of Z is....... (Round your result to two decimal places if necessary.)
Expert Answer:
a Homess production possibility frontier PPF can be described by QCabQFQCabQF where QC denotes the o... View the full answer
