1. Home has 600 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 4, while in banana production it is 2.

a.Graph Home's production possibility frontier.

b.What is the opportunity cost of apples in terms of bananas?

c.In the absence of trade, what would the price of apples in terms of bananas be? Why?

1. Home is as described in problem 1. There is now also another country, Foreign, with a labor force of 400. Foreign's unit labor requirement in apple production is 5, while in banana production it is 1.

a.Graph Foreign's production possibility frontier.

b.Construct the relative supply curve in the world.

1. Suppose that one hour's labor produces 10 cars or 1 cannon in Sweden, and 5 cars or 3 cannons in Denmark. Using opportunity costs, explain which country will export cars and which country will export cannons if Sweden and Denmark trade.

1. Discuss the following argument in light of the Ricardian trade model. "Chinese workers earn only $0.75 an hour; if we allow China to export as much as it likes, our workers will be forced down to the same level. You can't import a $10 shirt without importing the $0.75 wage that goes with it."