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What is the opportunity cost of apples in terms of bananas

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Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. There is now also another country, Foreign, with a labor force of 800. Foreign's unit labor requirement in apple production is 5, while in banana production it is 1.

  1. What is the opportunity cost of apples in terms of bananas?
  2. In the absence of trade, what would be the price of apples in terms of bananas? Why?

There is now also another country, Foreign, with a labor force of 800. Foreign's unit labor requirement in apple production is 5, while in banana production it is 1.

3. What is the opportunity cost of apples in terms of bananas in the Foreign country?

4. In the absence of trade in Foreign, what would be the price of apples in terms of bananas? Why?

Now suppose world relative demand takes the following form: Demand for apples / Demand for bananas = PA/PB

5. Where will the world equilibrium relative price of apples lie?

6. Describe the pattern of trade.

Reference no: EM133564472

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