Question
Country H has 1200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3,
Country H has 1200 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. Country F has 800 units of labor available. Country F's unit labor requirement in apple production is 5, while in banana production it is 1. Suppose world relative demand takes the following form: Demand for apples/demand for bananas = price of bananas/price of apples.
a. Graph the relative demand curve along with the relative supply curve.
b. What is the equilibrium relative price of apples?
c. Describe the pattern of trade.
d. Show that both Country H and Country F benefit from trade.
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