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Home has 2,400 units of labor available. It can produce two goods, oranges and pears. The unit labor requirement in orange production is 6, while
Home has 2,400 units of labor available. It can produce two goods, oranges and pears. The unit labor requirement in orange production is 6, while in pear production it is 4. a. Graph Home's production possibility frontier. b. What is the opportunity cost of oranges in terms of pears? c. In the absence of trade, what would be the price of oranges in terms of pears? Why? Home is as described in problem 1. There is now also another country, Foreign, with a labor force of 1600. Foreign's unit labor requirement in orange production is 10, while in pear production it is 2. d. Graph Foreign's production possibilities frontier. e. Construct the world relative supply curve. Now suppose world relative demand takes the following form: Demand for oranges/ demand for pears = price of pears / price of oranges. ( question h and i is optional) f. Graph the relative demand curve along with relative supply curve. g. What is the equilibrium relative price of oranges? h. Describe the pattern of trade. i. Show that both Home and Foreign gain from trade
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