Where does the free trade relative price of cheese in terms of wine appear in the equationdescribing trade possibilities?Draw graph of US trade possibilities frontier on the PPF graph (label TPF). (Ricardian Model] In the United States (US), producing one pound of cheese requires 2 hour of labor,while producing one gallon of wine requires 1 hour of labor. In the rest of the world (ROW), producingone pound of cheese requires 9 hours of labor, while producing one gallon of wine requires I hour oflabor. The United States has 360 hours of labor and the ROW has 1260 hours of labor. World relativedemand for cheese to wine is RD- De/Dw = Pw/Pc.

Ricardian Model: A Ricardian model assumes there are two units of production preferably two…

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ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Question

Where does the free trade relative price of cheese in terms of wine appear in the equation
describing trade possibilities?
Draw graph of US trade possibilities frontier on the PPF graph (label TPF).

(Ricardian Model] In the United States (US), producing one pound of cheese requires 2 hour of labor,
while producing one gallon of wine requires 1 hour of labor. In the rest of the world (ROW), producing
one pound of cheese requires 9 hours of labor, while producing one gallon of wine requires I hour of
labor. The United States has 360 hours of labor and the ROW has 1260 hours of labor. World relative
demand for cheese to wine is RD- De/Dw = Pw/Pc.

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