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#### Homework Answers

Answer #1

a) For Gryffindor,

Max Magic wands production = 6 * 10 = 60

Max chocolate frog production = 10 * 10 = 100

For Slytherin,

Max Magic wands production = 0.5 * 20 = 10

Max chocolate frog production = 1 * 20 =20. The PPF for each country is as follows:

b) For gryffindor, Opportunity cost of producing magic wands is = 100/60 = 5/3 = 1.667

For slytherin, Opportunity cost of producing magic wands is = 20/10 = 2

As we can see, it is costlier for slytherin to produce magic wands as compared to gryffindor as its opportunity cost is higher. Thus, gryffindor has COMPARATIVE ADVANTAGE in producing Magic Wands.

c) Relative price of magic wands in gryffindor = Pmw/Pcf = 60/100 = 0.6

Relative price of magic wands in slytherin = Pmw/Pcf = 10/20 = 0.5

Therefor max rel. price is 0.6 and min rel. price is 0.5 in equilibrium.

d) PW/PF= 1.8 (GIVEN) or, PF/ PW = 1/1.8= 0.55

aw / af = 0.60 for gryffindor and aw / af = 0.50 for slytherin.

since, 0.60>0.55>0.50 according to ricardian model, gryffindor should export magic wands and slytherin should export chocolate frogs.

......................................................................................................................................................

NOTE: For further reference, ricardian model says the following:

IF PW/PF >aw / af ; then one should produce and export w

IF PW/PF<aw / af ; then one should produce and export f

IF they are equal, any combination works.

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