Question

[4] The Home country has 2,500 units of labor available while the Foreign country has 1700 units of labor. The two countries produce two goods, textiles and soybeans. The unit labor requirements in textile production for the Home and Foreign countries is 7.2 and 2.2, respectively, while soybean production requirements is respectively 2.9 and 5.1.

a.) Graph the Home and Foreign production possibilities frontiers.

b.) What is the opportunity cost of textiles in terms of soybeans for both countries?

c.) What is the opportunity cost of soybeans in terms of textiles for both countries?

d.) What will be the no trade Terms of Trade (or P_S/P_T) for each country?

e.) How will the Terms of Trade (or P_S/P_T) change for each country if they trade?

d.) Show the trade triangles for the two trading countries.

Answer 1

- (0) Term of (vendo must lie in the rounge : relative price in pome. (3/8)<2006 relative price inforeign (14) CS Scanned with CamScanner 0.103< 101<2.32

- (0) Term of (vendo must lie in the rounge : relative price in pome. (3/8)<2006 relative price inforeign (14) CS Scanned with CamScanner 0.103< 101<2.32