There is a foreign country with L* = 20,000 workers. Each of their workers can produce either 100 units of X per month or 10 units of Y.

Draw the foreign country’s PPF and calculate its slope. Assuming it also produces at autarky with half of its labor producing X and the other half producing Y, how much can it consume of each (CX*, CY*)? Show this point with an indifference curve.

Assume that the foreign price PX* equals 1 mark, the foreign currency. How much is PY*, in marks? How much is the wage in each sector (WX*, WY*), in marks?

Comparing your country to the foreign country, which country has the comparative advantage in textiles? Which has it in food?

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In a foreign country with L 20000 workers each worker can produce either 100 units of X per m... View the full answer