Jim Whitney | Economics 311 |
Checklist:
___ 1. Suppose that point E is the country's autarky
optimum. Draw the country's autarky social indifference curve 'Ua'.
___ 2. Draw budget line 'BLfe' through point E and
parallel to BLf. (The country can trade along that budget line if it continues
to produce at point E.)
___ 3. Draw arrow '1' along BLfe to show which direction
the country should trade to reach an indifference curve higher than Ua.
Should the country export A or B? ______
___ 4. Draw arrow '2' along the country's PPF to
show which direction the country should specialize to reach a free-trade
budget line higher than BLfe.
Should the country produce more A or more B? ______
___ 5. Suppose that with specialization and trade
the country ends up producing at point Prf and then trading along BLf to
its consumption optimum at point Cf. Draw the country's new social indifference
curve 'Uf'.
___ 6. Complete the following table with quantity
values from the diagram (in 1000s):
Autarky | Free trade | |||
A | B | A | B | |
Production | ______ | ______ | ______ | ______ |
Trade | ______ | ______ | ______ | ______ |
Consumption | ______ | ______ | ______ | ______ |
___ 8. Depict a possible consumption optimum under
the assumption that initially the country can trade along BLfe but cannot
adjust its production level from point E. Label your indifference curve
'Ufe'.
Is the country still better off than under autarky?
_____
How can you tell?