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  3. 3 suppose that home and foreign are the only countries...

Question: 3 suppose that home and foreign are the only countries...

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3. Suppose that Home and Foreign are the only countries in the world and that labor is the only productive input. At Home, it requires 1 hours of labor to produce 4 Airplanes (A) and 1 hours of labor to produce 5 Bicycles (B). In Foreign, it requires 1 hour of labor to produce 1 Airplane (A) and 1 hour of labor to produce 2 Bicycles (B). Assume that consumers in each country consume the amounts identified in the following table: No Trade (Autark International Trade Home Foreign 140 30 75 100 130 70 100 60 a. On one graph, draw (1) Homes production possibilities frontier without trade and the no-trade equilibrium as well as (2) the world price line and the consumption and production of Home with trade Show the indifference curves of Home consumers at their highest utility level with and without trade. Put Bicycles on the X-axis. b. On one graph, draw (1) Foreigns production possibilities frontier without trade and the no-trade equilibrium as well as (2) the world price line and the consumption and production of Foreign with trade Show the indifference curves of Foreign consumers at their highest utility level with and without trade. Put Bicycles on the X-axis. C. What are the real wages in Home? What are the real wages in Foreign?

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