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nort Answer Questions 20 Minutes:
5. Assume there are only 2 countries in the world, Home country and Foreign country.
They only produce 2 goods, Cheese and Wine. Given the following information:
aLc = 1, alw= 2, L = 100
aic=6, atw = 3, L = 300
d.
e.
Answer the following questions.
a. Draw the World's PPF.
b. Draw the RS (Relative Supply) curve. Label both Axis and mark all the important
points.
c. Suppose world relative demand takes the following form: demand for
cheese/demand for wine = 1/2. Find the equilibrium and label it in your graph
with EQ.
Which country will benefit from the trade with the consumption from (c).
What will be the most inefficient way to produce both good for the world, Sue a
Figure and show the relevant numbers numerically.