Panama and Cuba produce two goods, Bananas (B) and Sugar (S). The PPF's for each

country is:

Panama: B+2S=100

Cuba: 4B+S=100

a) Which country has comparative advantage in producing Bananas?

b) Draw the world relative supply curve for Bananas by carefully labeling the

intercepts.

c) World relative demand is: Qb/Qs = -Pb/Ps + 3. Find the world equilibrium price

and draw the demand curve.

d) Draw the consumption possibilities frontier (CPF) for each country at the world

equilibrium price. Carefully label the slope and intercepts.

e) Suppose Panama attracts immigration from El Salvador. Plot and discuss the

following (No numbers needed):

i. What happens to the world relative supply (RS) curve and equilibrium

relative price of Bananas?

ii. What happens to CPF of Cuba.