There are two countries Home and Foreign. They can produce two goods, apples and bananas. Home has 1,200 units of labor available and Foreign has a labor force of 800. The table below contains the unit labor requirement in Foreign and Home for each of two goods. Banana Apple Home aB = 1 hour per pound aA = 2 hours per pound Foreign aB = 4 hours per pound aA = 5 hours per pound 1. Which country has an absolute advantage in bananas? In apples? 2. Graph Home's and Foreign's production possibility frontiers. 3. Find the opportunity cost of bananas in Home and in Foreign. 4. Which country has a comparative advantage in bananas? 5. Suppose that, after opening to trade, the equilibrium world relative price of bananas is 0.7. Graph how each country's consumption possibilities change, with bananas on the horizontal axis. Label the axes and curves and give the slope of each curve. 6. Describe the pattern of trade. 7. Suppose the world price of bananas is $7 and of apples is $10. Find the hourly wages in Home and Foreign. What is the relative wage? (Notice that Home is 4 times more productive in cheese and 2.5 times more productive in wine, so Home's relative wage will fall somewhere between 2.5 and 4.) 8. Show that both Home and Foreign gain from trade.

There are two countries Home and Foreign. They can produce mo goods, apples and bananas. Home has 1,2i] units of labor available and Foreign has a labor force of BUD. The table below contains the unit labor requirement in Foreign and Home for each of two goods. App-1e a3 = 1 hour per pound by, = 2 hours per pound at; = 4 hours per pound as. = 5 hours per pound 1. Which country has an absolute advantage in bananas\"? In apples? 2. Graph Homes and Foreign's production possibility frontiers. 3. Find the opportunity cost of bananas in Home and in Foreign. 4. Which country has a comparative advantage in bananas? 5. Suppose that, after opening to trade, the equilibrium world relative price of bananas is LIT. lGraph how each oountry*s consumption poaibilities change, with bananas on the horizontal axis. Label the axes and curves and give the slope of each curve. 6. Desm'ibe the pattern of trade. 7. Suppose the world price of bananas is $2 and of apples is $10. Find the hourly wages in Home and Foreign. What is the relative wage? {Notice that Home is 4 times more productive in cheese and 2.5 times more productive in wine, so Home's relative wage will fall somewhere between 2.5 and 4.} E. Show that both Home and Foreign gain from trade