Suppose that instead of 1,200 workers, Home has 2,...
Suppose that instead of 1,200 workers, Home has 2,400. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. There is now also another country, Foreign, with a labor force of 800. Foreign’s unit labor requirement in apple production is 5, while in banana production it is 1. Now suppose world relative demand takes the following form: Demand for apples/demand for bananas = price of bananas/price of apples. Find the equilibrium relative price. What can you say about the efficiency of world production and the division of the gains from trade between Home and Foreign in this case?