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There are two countries, Home and Foreign, which produce cheese (Qc) and wine (Qw). Home has a fixed labor supply of 2000 hours. In
There are two countries, Home and Foreign, which produce cheese (Qc) and wine (Qw). Home has a fixed labor supply of 2000 hours. In Home, the unit labor requirement for Qc is 1 hour/Qc and the unit labor requirement for Qw is 1 hour/Qw. Foreign has a fixed labor supply of 4000 hours. In Foreign, the unit labor requirement for Qc is 4 hours/Qc and the unit labor requirement for Qw is 1 hour/Qw. a. (5 points) Draw the production possibilities frontiers (PPFS) for each country with Qc on the x-axis. b. (6 points) Draw the relative supply (RS) curve for the world market on a new graph. Be sure to label both of the axes, then calculate and mark the relevant RS values on each axis. W Pc c. (3 points) Assume the relative demand (RD) curve takes the form (b) and identify the world equilibrium relative price and quantity of cheese. Pw Qw+Qw Qo+Qc Draw an RD curve on the graph in part d. (4 points) On the PPFs graphs you drew for part (a), draw the lines that represent the consumption possibilities for these countries at the equilibrium world relative price of cheese. e. (3 points) If the world relative price of cheese increases, which country will benefit and why?
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