Question

Questions 5-15 are based on the following Ricardian model.

Marginal Product of Labor                           Labor Force

Shirts                          Apples

Home              MPL_S = 2                    MPL_A = 5                   L =100

Foreign           MPL_S^* = 1                  MPL_A^* = 2                  L^* = 240

5. Draw the PPF for the Home country. Please label both intercepts and the slope of the PPF.

For Questions 9-11 below, assume that the Home and Foreign countries are engaged in free trade.

9. Indicate whether it is true or false: The Foreign country exports apples under free trade.

10. Indicate whether it is true or false: The Foreign country’s terms-of-trade must be above 2 under free trade.

11. Indicate whether it is true or false: If we know that the Home country consumes 280 apples, we can infer that the Foreign country imports 220 apples.

For Questions 12-15 below, assume that P_shirts^T/P_apples^T = 11/5

12. Graph the Home country’s CPF under free trade. Please label both intercepts and the slope. You can either draw a new picture, or in the same picture as question 5 above.

13. Answer whether it is true or false: The real wage for shirts in the Home country is 25/11.

14. Answer whether it is true or false: The ratio of the Home country’s wage to the Foreign country’s wage is 22/5.

15. Answer whether it is true or false: The Foreign country’s trade balance (TB) is 0.

There is no more information provided

Answer 1