00:01
Consider two countries that produce goods one and two.
00:05
Both countries have the same supply of labor, capital, and land.
00:08
Then the capital stock in home grows.
00:11
Show the increase in supply of capital for home and how it affects the production possibilities frontier.
00:18
So we're going to have good two on the vertical axis and then good one on the horizontal axis.
00:30
This is going to be production possibilities frontier for home.
00:37
So the production possibilities frontier shows the possible combinations of goods that can be produced through effective allocation of scarce resources.
00:49
So good one is the good that uses labor and capital.
00:54
If the capital stock in home grows, it's going to be able to produce more good one at every point or at every amount of good to.
01:06
So therefore, the curve is going to shift like this.
01:14
Draw the relative supply curve for both of these home and foreign economies.
01:22
So on this axis, we're going to have the relative price.
01:35
And then on this axis, we have relative quantity.
01:50
So we know that home is going to produce more of good ones.
01:54
So q1 over q2 will be higher for home...