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I am having trouble understanding the questions For this assigtunent we will consider two countries, which we will just call Home and Foreign. Together they
I am having trouble understanding the questions
For this assigtunent we will consider two countries, which we will just call Home and Foreign. Together they comprise the world economy. We assume that these countries differ in their resource endowments but not in their technologies. There are two goods in each economy: computers [(3) and jackets (I). The quantity produced of each, in millions, will be denoted by QC and (11, respectively. There are also two factors of production: capital [K] and labor (L). We will assume that Home is capital-abundant and that Foreign is labor-abundant. We will also assume that computer production is capital-intensive and that jacket production is labor-intensive. 1. First, assume that no trade exists between the two countries. Suppose that Home's production possibilities 'ontier (PPF) is given by the following equation: Qj=./4G.ZEQE~ The slope of the production possibilities curve (the marginal rate oftransformation) is: If Home produces 3.2 million computers in the pre-trade equilibrium, what will be the relative price of computers in terms of J ackets? How many jackets will Home produce? {5 points) 2. Suppose that Foreign' s production possibilities ontier [PPF} is given by the following equation: Q,=./9QE The slope of the production possibilities curve (the marginal rate oftransformation) is: If Foreign produces 2.4 million computers in the pre-trarle equilibrium, what will be the relative price of computers in terms of J ackets? How many jackets will Foreign produce? {5 points)Step by Step Solution
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