Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421315
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 20, Problem 2.1P
(a)
To determine
The
(b)
To determine
Identify the role of transportation costs in trade.
(c)
To determine
Identify the role of the trade agreement in the exchange process.
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Assuming that there are only two countries in the world, Indonesia and ROW (Rest of the
World) which both produce Cloth (C) and Food (F) using labor as factor production. The
following table shows the number of hours of work needed to produce one unit of C and
F in both countries:
Cloth (C)
Food (F)
Indonesia
1 hour per meter
2 hour per kg
ROW
6 hour per meter
3 hour per kg
There are two countries Home and Foreign.
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.
Foreign has a labor force of 800. Foreign's unit labor requirement in
apple production is 5, while in banana production it is 1.
Suppose world relative demand takes the following form: Demand for
apples/demand for bananas = price of bananas/price of apples.
1.) Using the 3-point curved line drawing tool, draw the relative
demand curve on the graph to the right. Label the curve RD.
Now suppose that instead of 1,200 workers, Home had 2,400. The
relative supply curve (RS) would shift to the right (as shown by RS₁).
2.) Using the point drawing tool, indicate the new equilibrium relative
price of apples. Label this point EQ.
Carefully follow the instructions above and only draw the required
objects.
What can you say about the efficiency of world production and the
division of…
There are two countries Home and Foreign.
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.
Foreign has a labor force of 800. Foreign's unit labor requirement in apple production is 5, while in
banana production it is 1.
Suppose world relative demand takes the following form: Demand for apples/demand for bananas
= price of bananas/price of apples
a-b. On the graph to the right:
1.) Using the 3-point curved line drawing tool, draw the relative demand curve. Label the curve
RD.
2) Using the point drawing tool, indicate the equilibrium relative price of apples. Label this point
EQ.
Carefully follow the instructions above and only draw the required objects.
2
Relative price of apples Pa/Pb
0
035
0.75
05
Relative quantity of apples
RS
Chapter 20 Solutions
Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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