cheese aLc 6 hours per pound aLc 2 hours per pound whiskey a

cheese aLc 6 hours per pound aLc 2 hours per pound whiskey aLw 5 hours per gallon aLw 6 hours per gallon Home Foreign where: acnumber of labor hours needed to produce a unit of cheese in Home; aLw number of labor hours needed to produce a unit of whiskey in Home at = number of labor hours needed to produce a unit of cheese in Foreign: amber of labor hours needed to produce a unit of whiskey in Foreign LW Pc the money price per pound of cheese Pw he money price per pound of whiskey In the absence of trade between Home and Foreign the unit labor requirements given above indicate that the relative price of cheese (Pc Pw) will be lower in Once Home and Foreign engage in trade, the world equilibrium relative price of cheese (Pc/Pw) will be determined by the In the graphical portrayal of world equilibrium, the relative demand curve of cheese is downward-sloping and the relative supply curve of cheese is shaped as: O A. a vertical line B. D, a downward-sloping curve an upward-sloping curve OC. a step function Activate Windows Click to select your answer

Solution

1) Pc/Pw = a_LC / a_LW

Pc/Pw = 6/5 = 1.2 in home country

Pc/Pw = 2/6 = 0.33 in foreign country

So, Relative price is lower in Foreign country.

2) Relative demand and supply curve

3) c) a step function