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's production possibility frontier.
b. Construct the world relative supply curve.
Problem 1
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.
a. Graph Home's production possibility frontier.
b. What is the opportunity cost of apples in terms of bananas?
c. In the absence of trade, what would the price of apples in terms of bananas be? Why?