Country H has 1200 work units. He can produce two goods: apples (good 1) and bananas (good 2). The unit labor quantity for apple production is 3, while for banana production it is 2.

1)  Draw the frontier of production possibilities in H.

2)  What is the opportunity cost of apples in terms of bananas?

3)  In the absence of trade (self-sufficiency), what would be the price of apples compared to bananas? For what?

Now suppose that a second country, F, has 800 labor units. In F, the unit quantity of work for apples is 5, for bananas 1.

1)  Which country has a comparative advantage in apple production? For what?

2)  Assume that H and F can engage in free trade at an international relative price that links between the relative prices of H and F in self-sufficiency. Let's also assume that in both countries, preferences are identical and that consumers prefer to eat balanced baskets of apples and bananas (as we saw in class). Describe the structure of exchanges.

3) Does the trade benefit only H, only F, or both countries? For what?