【正文】
h has different relative unit labor requirements. General equilibrium relative supply and demand curves are developed. This analysis demonstrates that at least one country will specialize in production. The gains from trade are then demonstrated with a graph and a numerical example. The intuition of indirect production, that is “producing” a good by producing the good for which a country enjoys a parative advantage and then trading for the other good, is an appealing concept to emphasize when presenting the gains from trade argument. Students are able to apply the Ricardian theory of parative advantage to analyze three misconceptions about the advantages of free trade. Each of the three “myths” represents a mon argument against free trade and the flaws of each can be demonstrated in the context of examples already developed in the chapter.While the initial intuitions are developed in the context of a two good model, it is straightforward to extend the model to describe trade patterns when there are N goods. This analysis can be used to explain why a small country specializes in the production of a few goods while a large country specializes in the production of many goods. The chapter ends by discussing the role that transport costs play in making some goods nontraded.nAnswers to Textbook Problems1. a. The production possibility curve is a straight line that intercepts the apple axis at 400(1200/3) and the banana axis at 600(1200/2).b. The opportunity cost of apples in terms of bananas is 3/2. It takes three units of labor to harvest an apple but only two units of labor to harvest a banana. If one foregoes harvesting an apple, this frees up three units of labor. These 3 units of labor could then be used to harvest bananas.c. Labor mobility ensures a mon wage in each sector and petition ensures the price of goods equals their cost of production. Thus, the relative price equals the relative costs, which equals the wage times the unit labor requirement