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1、Chapter 21.Home has 1200 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.a.Graph out the production possibil

2、ities frontier: b.What is the opportunity cost of apples in terms of bananas?5 . 1 ?LbLaaac.In the absence of trade, what would the price of apples in terms of bananas be?In the absence of trade, since labor is the only

3、factor of production and supply decisions are determined by the attempts of individuals to maximize their earnings in a competitive economy, only when will both goods be produced. So Lb La b a /a a /P P ? 1.5 /P P b a

4、?2.Home is as described in problem 1. 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. a.Graph Foreign’

5、s production possibilities frontier: b.Construct the world relative supply curve.Home's PPF0200 400 600 800200 400 600 800 QappleQbananaForeign's PPF0200400600800100080 160 240 320 400 Q*appleQ*banana∴ 2 / ? b P

6、a P e ec.Describe the pattern of trade.∵ b a beaeb a P P P P P P / / / ? ? ? ?∴In this two-country world, Home will specialize in the apple production, export apples and import bananas. Foreign will specialize in the ban

7、ana production, export bananas and import apples. d.Show that both Home and Foreign gain from trade.International trade allows Home and Foreign to consume anywhere within the colored lines, which lie outside the countri

8、es’ production possibility frontiers. And the indirect method, specializing in producing only one production then trade with other country, is a more efficient method than direct production. In the absence of trade, Home

9、 could gain three bananas by foregoing two apples, and Foreign could gain by one foregoing five bananas. Trade allows each country to trade two bananas for one apple. Home could then gain four bananas by foregoing two ap

10、ples while Foreign could gain one apple by foregoing only two bananas. So both Home and Foreign gain from trade.4.Suppose that instead of 1200 workers, Home had 2400. Find the equilibrium relative price. What can you say

11、 about the efficiency of world production and the division of the gains from trade between Home and Foreign in this case?RD: y x 1 ?RS: 5] 5 , 5 . 1 [5 . 1] , 1 (1) 1 , 0 [???? ?? ???? ???yyyxxx∴ 5 . 1 32 ? ? y x∴ 5 . 1

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