Question

Suppose Home has 300 units of labor. It can produce two goods, apples and bananas. In Home a worker can produce 3 apples or 5 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 10 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 (Hint: this is just the inverse function.) 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?

First 4 subparts are answered below a) Home labor: 300 units One worker can produce 3 apples or 5 bananas Thus, 300 workers can produce 3x300 900 apples or 5x300 1500 bananas Thus, the PPF would look like as below: Bananas 1500 Apples b) Since Home country can produce either 900 apples or 1500 bananas with its given level of resources. 900 apples-1500 bananas 1 apple -1500/900 bananas 1 apple 1.67 bananas Thus, opportunity cost of an apple = 1.67 bananas c) Relative price: Pa/Pb 1.67 d) Foreign labor: 200 units One worker can produce 2 apples or 10 bananas Thus, 200 workers can produce 2x200 400 apples or 10x200 2000 bananas Thus, the PPF would look like as below: Bananas 2000 400 Apples

I need f-k answered please

Answer 1