1. The Ricardian Model (chapter 3) The country, called "Home" has the following characteristics regarding factors of production and productivity: The only factor of production is labor, of which the country has a total of 1200 units With this factor of production the country can produce two goods: apples and bananas. The unit labor requirement in apple production is 3. (It takes 3 unit of labor to produce 1 apple). The unit labor requirement in banana production is 2. (It takes 2 units of labor to produce 1 banana). (a) Putting bananas on the horizontal axis, and apples on the vertical axis, draw the production possibilities frontier for the country "Home" (b) Calculate the numerical opportunity cost of apples in terms of bananas and explain verbally the meaning of opportunity cost. (c) As long as the country is closed to international trade, what is "Home's" price of apples in terms of bananas? Explain. 2. The Ricardian Model (chapter 3) Here we are dealing with two countries: "Home" and "Foreign". Home is exactly as described in Exercise 1. The country "Foreign" has the following characteristics regarding factors of production and productivity: The only factor of production is labor, of which the country has a total of 800 units "Foreign's" unit labor requirement in apple production is 5 (It takes 5 units of labor to produce 1 apple). The country's unit labor requirement in banana production is 1. (It takes one unit of labor to produce 1 banana). (a) Putting bananas on the horizontal axis and apples on the vertical axis, draw "Foreign's" production possibilities frontier. (b) Putting Relative Quantity of Apples on the horizontal Axis and Relative Price of Apples on the vertical axis, construct the World Relative Supply Curve. Label the graph and explain the shape of the World Relative Supply Curve.

3. The Ricardian Model (chapter 3) We continue with the story of exercise 1 and 2. Draw a new graph with Relative Quantity of Apples on the horizontal Axis and Relative Price of Apples on the vertical axis, with the Relative Supply Curve of exercise 2, but now add the relative demand curve. The relative demand curve, which describes a relation between the relative price and relative quantity is specified as follows: Quantity of apples demanded _ Price of bananas Quantity of bananas demanded _ Price of apples (a) Graph the Relative Demand Curve and the Relative Supply Curve. (b) Determine the Equilibrium Relative Price of Apples. Indicate it in the graph. Explain. (c) Describe the pattern of production (who produces what) and the pattern of international trade (who exports what, who imports what)? (d) Explain in detail that (and how) both countries gain from international trade