Global Economics

A home country has one thousand two hundred (1,200) units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. Graph Home’s production possibility frontier.

  • What is the opportunity cost of apples in terms of bananas? 
  • In the absence of trade, what would be the price of apples in terms of bananas? 
  • What are the economic reasons?

Now assume that we have a two factor economy (Heckscher – Ohlin) 

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Can you explain why the production possibility frontier in the two factor model, the Red line is kinked?


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