Home has 1,200 workers. It can produce two goods, apples(QA) and bananas(QB). The unit labor requirement in apple production is 3, while it is 2 in banana production. Foreign has 800 workers, Foreign's unit labor requirement for apples is 10 and it is 2 for bananas.
a. draw the PPF for home(with the production of apples on x-axis). what is the opportunity cost of apples in terms of bananas?
b. Draw the relative supply curve.
c. Draw the relative demand curve when the demand for apples/demand for bananas = the price of bananas/price of apples. What is the equilibrium world relative price of apples? MORE INFO: You want to think about this as ((Qa+Qa*)/(Qb+Qb*)) = (Pb/Pa), where (Pb/Pa) is the world price. Imagine a RD curve drawn on a graph. If you plug in ((Qa+Qa*)/(Qb+Qb*)) = 1/4 into the RD, then the value of (Pb/Pa) at that point on the RD equals 4/1, or 4. Similarly, if ((Qa+Qa*)/(Qb+Qb*)) = 1/3, then (Pb/Pa)=3. If ((Qa+Qa*)/(Qb+Qb*)) = 1/2, then (Pb/Pa)=2. And if ((Qa+Qa*)/(Qb+Qb*)) = 1, then (Pb/Pa)=1. This maps out a relative demand curve. You can then see where these points would cross the RS. The point where RD=RS determines the equilibrium world price.