1. Business
  2. Economics
  3. consider two countries home and foreign that can produce two...

Question: consider two countries home and foreign that can produce two...

Question details

Consider two countries Home and Foreign that can produce two goods, apples and bananas, using labour as the sole production factor. Home and Foreign have, respectively, 2400 and 1600 units of labour available and the unit labour requirements in the production of both goods are as shown in the following table: Home Foreign Apple 6 hours 10 hours Bananas 4 hours 2 hours 1. Construct the world relative supply curve and graph the relative demand curve along with the relative supply curve. (Use the ratio of apple quantity to bananas quantity on the X-axis). (10 points) Assuming that the world relative demand takes the following form: Demand for apple Price of bananas Price of apple Demand for bananas What is the equilibrium relative price of cloth? (10 points) Describe the trade pattern and show that both Home and Foreign gain from trade. (10 2. 3. points) 4. Suppose that instead of 2,400 workers, Home had 4,800. Find the equilibrium relative price. (10 points) 5. What can you say about the efficiency of world production and the division of the gains from trade between Home and Foreign in this case? (10 points)

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution