11 Assume a Ricardian model with two countries, Home and Foreign, that both produce cars and furniture. Home has 500 units of labor (L) available. Home's unit labor requirement in the production of cars is a c = 1, while in the production of furniture it is alr=2. Foreign has 600 units of labor (L*) available. Foreign's unit labor requirement in the production of cars is alc*=2, while in the production of furniture it is alf*= 3. a) Homes's production possibility frontier (PPF) can be described by Qc = a - bOF where Qc denotes the output of cars and QF denotes the output of furniture. Determine the values of a and b The value of a is: The value of b is. b) What is the maximum amount of furniture that Home can produce? The maximum amount is c) Assume Home wants to produce 400 cars. How much furniture can it produce? If Home produces 400 cars, it can produce units of furniture d) What are the opportunity costs of furniture in terms of cars in both countries? Opportunity costs of furniture in terms of cars in Home are Opportunity costs of furniture in terms of cars in Foreign are e) Assume there is free trade and the world price of cars is pic=5, while the world price of furniture is PT=9. Which good will be exported by Home? Home exports e) Assume there is free trade and the world price of cars is Plc=5, while the world price of furniture is PT=9. Which good will be exported by Home? Home exports How large will be the world supply of cars and furniture, respectively? The world supply of cars equals The world supply of furniture equals f) Assume again there is free trade and the world price of cars is pic=5, while the world price of furniture is PTF=9. What is the maximum amount of cars that Foreign can consume? (Assume that there is always sufficient supply on the world market.) With trade the maximum amount of cars Foreign can consume is 11 Assume a Ricardian model with two countries, Home and Foreign, that both produce cars and furniture. Home has 500 units of labor (L) available. Home's unit labor requirement in the production of cars is a c = 1, while in the production of furniture it is alr=2. Foreign has 600 units of labor (L*) available. Foreign's unit labor requirement in the production of cars is alc*=2, while in the production of furniture it is alf*= 3. a) Homes's production possibility frontier (PPF) can be described by Qc = a - bOF where Qc denotes the output of cars and QF denotes the output of furniture. Determine the values of a and b The value of a is: The value of b is. b) What is the maximum amount of furniture that Home can produce? The maximum amount is c) Assume Home wants to produce 400 cars. How much furniture can it produce? If Home produces 400 cars, it can produce units of furniture d) What are the opportunity costs of furniture in terms of cars in both countries? Opportunity costs of furniture in terms of cars in Home are Opportunity costs of furniture in terms of cars in Foreign are e) Assume there is free trade and the world price of cars is pic=5, while the world price of furniture is PT=9. Which good will be exported by Home? Home exports e) Assume there is free trade and the world price of cars is Plc=5, while the world price of furniture is PT=9. Which good will be exported by Home? Home exports How large will be the world supply of cars and furniture, respectively? The world supply of cars equals The world supply of furniture equals f) Assume again there is free trade and the world price of cars is pic=5, while the world price of furniture is PTF=9. What is the maximum amount of cars that Foreign can consume? (Assume that there is always sufficient supply on the world market.) With trade the maximum amount of cars Foreign can consume is