# class 6 - F Wine 1 2 Cheese 3 10 L 120 100 Comparative...

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H F Wine 1 2 Cheese 3 10 L 120 100 Comparative advantage draw ppf for home slope is opp cost ac/aw or autarky price pc/pw remember, profit = 0 or wc= pc/ac how many units of cheese does one worker produce? Pc *1/ac Ww = Pw/aw Must draw a relative price line. Intersection with the PPF tells us point of production: where do you produce? Ppf and relative price have to be the same so that any production point is possible. Foreign Qw opp cost is 5 gal/lbs, so is slope, autarky relative price is too. Case of trade qc Qw L/aw = 120 120/3 = 40 ppf Slope = 3 gal/lb = opp cost of producing cheese 50 10

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which country produces which good? Use comparative advantage. ac/aw and ac*/aw* evaluate in terms of ac/aw, pc/pw, and graphical doesnt say whether or not they engage in trade. Figure out free trade price of cheese pc/pw . If its between autarky relative prices 3 and 5, intl trade will occur. Draw ppf, then draw relative price under free trade. Draw on a line with a slope 4, which is a slope 4,
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class 6 - F Wine 1 2 Cheese 3 10 L 120 100 Comparative...

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