Question

Part A
1. Home has 1,200 units of labor available. It produces two goods, apples and bananas. The
unit labor requirement in apple production is 3, while in banana production it is 2.
Foreign has a labor force of 800. Foreign's unit labor requirement in apple production is
5, while in banana production it is 1.
a. Graph production possibility frontiers for both Home and Foreign in one
diagram
b. If trade happens between Home and Foreign, draw relative supply curve for
apples.
c. Draw relative demand curve for apples in the diagram which you have drawn
for Part (b), assuming that demand for apples/demand for bananas = price of
bananas/price of apples. Find the equilibrium relative price of apples and
show it in the diagram.
d. What is the pattern of trade?
e. Discuss the gains from trade, if any.

Answer 1

Answer:

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