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A. Graph The Relative Demand Curve Along With The Relative Supply Curve. Answer

The document discusses relative demand and supply curves for apples and bananas. It finds the equilibrium relative price of apples is 2 at the intersection of the curves. Home produces only apples and Foreign produces only bananas, and each trades some of its product. Both Home and Foreign gain from trading apples for bananas.

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Xinyu Zhu
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103 views2 pages

A. Graph The Relative Demand Curve Along With The Relative Supply Curve. Answer

The document discusses relative demand and supply curves for apples and bananas. It finds the equilibrium relative price of apples is 2 at the intersection of the curves. Home produces only apples and Foreign produces only bananas, and each trades some of its product. Both Home and Foreign gain from trading apples for bananas.

Uploaded by

Xinyu Zhu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Now suppose world relative demand takes the following form: Demand for apples/demand
for bananas = price of bananas/price of apples

a. Graph the relative demand curve along with the relative supply curve.

Answer

The relative demand curve includes the points (1/5, 5), (1/2, 2), (2/3, 3/2), (1, 1), (2, 1/2).

b. What is the equilibrium relative price of apples?

Answer

The equilibrium relative price of apples is found at the intersection of the relative demand
and relative supply curves. This is the point (1/2, 2), where the relative demand curve
intersects the vertical section of the relative supply curve. Thus, the equilibrium relative price
is 2.

c. Describe the pattern of trade.

Answer

Home produces only apples, Foreign produces only bananas, and each country trades some of
its product for the product of the other country.

d. Show that both Home and Foreign gain from trade.

Answer

This study source was downloaded by 100000882590330 from CourseHero.com on 03-14-2024 06:28:28 GMT -05:00

https://www.coursehero.com/file/90725407/Now-suppose-world-relative-demand-takes-the-following-formdocx/
In the absence of trade, Home could gain 3 bananas by forgoing 2 apples, and Foreign could
gain by 1 apple forgoing 5 bananas. Trade allows each country to trade 2 bananas for 1 apple.
Home could then gain 4 bananas by forgoing 2 apples, while Foreign could gain 1 apple by
forgoing only 2 bananas. Each country is better off with trade.

This study source was downloaded by 100000882590330 from CourseHero.com on 03-14-2024 06:28:28 GMT -05:00

https://www.coursehero.com/file/90725407/Now-suppose-world-relative-demand-takes-the-following-formdocx/
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