Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2 There is now also another country, Foreign, with a labor force of 800. Foreign’s unit labor requirement in apple production is 5, while in banana production it is 1. Now suppose world relative demand takes the following form: Demand for apples/demand for bananas = price of bananas/price of apples. Graph the relative demand curve along with the relative supply curve. What is the equilibrium relative price of apples? Describe the pattern of trade. Show that both Home and Foreign gain from trade.
Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2 There is now also another country, Foreign, with a labor force of 800. Foreign’s unit labor requirement in apple production is 5, while in banana production it is 1. Now suppose world relative demand takes the following form: Demand for apples/demand for bananas = price of bananas/price of apples. Graph the relative demand curve along with the relative supply curve. What is the equilibrium relative price of apples? Describe the pattern of trade. Show that both Home and Foreign gain from trade.
Chapter18: International Trade And Comparative Advantage
Section: Chapter Questions
Problem 2TY
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Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2
There is now also another country, Foreign, with a labor force of 800. Foreign’s unit labor requirement in apple production is 5, while in banana production it is 1.
Now suppose world relative demand takes the following form: Demand for apples/demand for bananas = price of bananas/price of apples.
- Graph the relative demand curve along with the relative supply curve.
- What is the
equilibrium relative price of apples? - Describe the pattern of trade.
- Show that both Home and Foreign
gain from trade .
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