What is the opportunity cost of producing wheat in terms

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Reference no: EM133711195

a. What is the opportunity cost of producing wheat in terms of oil for Home and Foreign?

b. Which country has an absolute advantage in producing wheat? Explain.

c. Which country has a comparative advantage in producing wheat? Explain.

d. What will be the relative price of wheat in Home and Foreign in the absence of trade? Why? Explain.

e. Construct the world relative supply curve using the relative price and relative quantity of wheat. Explain clearly the steps of deriving world relative supply curve in details. Illustrate it on a diagram.

Now suppose world relative demand takes the following form:

Demand for Oil/demand for Wheat = price of Wheat/price of Oil.

f. Graph the world relative demand curve along with the world relative supply curve.

g. What is the free-trade equilibrium relative price of wheat?

h. Describe the pattern of specialization and trade.

i. Show that both Home and Foreign gain from trade.

j. If for some reason workers become less productive in producing wheat at Home and the maximum amount of wheat that Home can produce with all its labour supply decreases to 200 from 300 units. Will there still be the possibility of gains from trade between these two countries? Why or why not? Explain.

Reference no: EM133711195

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