Home has 2400 units of labor in its economy. It can produce only two goods, purses (P) and wallets (W). The unit labor requirement in purse production is 12, while in wallet production the unit labor requirement is 6.

a) Graph Home's PPF.

b) What is the opportunity cost of a purse in terms of wallets?

c) Assume that Home is closed to trade (i.e., in autarky). Furthermore, assume Home consumers' will derive no utility if only one good is produced. What would the price of purses in terms of wallets be? How do we know for certain that this is the autarky price?

d) Now assume that an adventurous citizen of Home sails off on a raft and discovers another economy, Foreign. After meeting with the tribal leaders of Foreign, the sailor informs the Home government that Foreign has a work force of 1600. As it turns out, Foreign's economy also only produces wallets and purses. The unit labor requirement for purses in Foreign is 2 and for wallets it is 8. Graph Foreign's PPF.

e) Given this information for Home and Foreign, graph the world relative supply curve. Cleary label both axes and all intercepts.

f) The world relative demand curve takes the following form: The relative demand for purses in terms of wallets = (price of wallets / price of purses) + (3/2). Graph the relative demand curve in the same graph as the relative supply curve.