1) The Ricardian Model (chapter 3) The country, called "Home" has the following characteristics regarding factors of production and productivity: The only factor of production is labor, of which the country has a total of 1200 units With this factor of production the country can produce two goods: apples and bananas

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1) The Ricardian Model (chapter 3)
The country, called "Home" has the following characteristics regarding factors of production and
productivity: The only factor of production is labor, of which the country has a total of 1200 units
With this factor of production the country can produce two goods: apples and bananas. The unit labor
requirement in apple production is 3. (It takes 3 unit of labor to produce 1 apple). The unit labor
requirement in banana production is 2. (It takes 2 units of labor to produce 1 banana).
(a) Putting bananas on the horizontal axis, and apples on the vertical axis, draw the production
possibilities frontier for the country "Home"
(b) Calculate the numerical opportunity cost of apples in terms of bananas and explain verbally the
meaning of opportunity cost.
(c) As long as the country is closed to international trade, what is "Home's" price of apples in terms
of bananas? Explain.
2. The Ricardian Model (chapter 3)
Here we are dealing with two countries: "Home" and "Foreign". Home is exactly as described in
Exercise 1. The country "Foreign" has the following characteristics regarding factors of production
and productivity: The only factor of production is labor, of which the country has a total of 800 units
"Foreign's" unit labor requirement in apple production is 5 (It takes 5 units of labor to produce 1
apple). The country's unit labor requirement in banana production is 1. (It takes one unit of labor to
produce 1 banana).
(a) Putting bananas on the horizontal axis and apples on the vertical axis, draw "Foreign's" production
possibilities frontier.
(b) Putting Relative Quantity of Apples on the horizontal Axis and Relative Price of Apples on the
vertical axis, construct the World Relative Supply Curve. Label the graph and explain the shape of the
World Relative Supply Curve.