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1、Chapter31．Homehas1200unitsoflaboravailable.Itcanproducetwogoods,applesandbananas.Theunitlaborrequirementinappleproductionis3,whileinbananaproductionitis2.a．Graphouttheproductionpossibilitiesfrontier:b．Whatistheopportunitycostofapplesintermsofbananas?c．Intheabsenceoftrade
2、,whatwouldthepriceofapplesintermsofbananasbe?Intheabsenceoftrade,sincelaboristheonlyfactorofproductionandsupplydecisionsaredeterminedbytheattemptsofindividualstomaximizetheirearningsinacompetitiveeconomy,onlywhenwillbothgoodsbeproduced.So2．Homeisasdescribedinproblem1.The
3、reisnowalsoanothercountry,Foreign,withalaborforceof800.Foreign’sunitlaborrequirementinappleproductionis5,whileinbananaproductionitis1.a．GraphForeign’sproductionpossibilitiesfrontier:b．Constructtheworldrelativesupplycurve.3．Nowsupposeworldrelativedemandtakesthefollowingfo
4、rm:Demandforapples/demandforbananas=priceofbananas/priceofapples.a．Graphtherelativedemandcurvealongwiththerelativesupplycurve:∵Whenthemarketachievesitsequilibrium,wehave∴RDisahyperbolab．Whatistheequilibriumrelativepriceofapples?Theequilibriumrelativepriceofapplesisdeterm
5、inedbytheintersectionoftheRDandRScurves.RD:RS:∴∴c．Describethepatternoftrade.∵∴Inthistwo-countryworld,Homewillspecializeintheappleproduction,exportapplesandimportbananas.Foreignwillspecializeinthebananaproduction,exportbananasandimportapples.d．ShowthatbothHomeandForeignga
6、infromtrade.InternationaltradeallowsHomeandForeigntoconsumeanywherewithinthecoloredlines,whichlieoutsidethecountries’productionpossibilityfrontiers.Andtheindirectmethod,specializinginproducingonlyoneproductionthentradewithothercountry,isamoreefficientmethodthandirectprod
7、uction.Intheabsenceoftrade,Homecouldgainthreebananasbyforegoingtwoapples,andForeigncouldgainbyoneforegoingfivebananas.Tradeallowseachcountrytotradetwobananasforoneapple.HomecouldthengainfourbananasbyforegoingtwoappleswhileForeigncouldgainoneapplebyforegoingonlytwobananas
8、.SobothHomeandForeigngainfromtrade.4．Supposethatinsteadof1200workers,Homehad2400.Findtheequilibriumrela
