Set02-GainsRicardian

Set02-GainsRicardian - Econ 441 Problem Set 2 Alan...

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Econ 441 Alan Deardorff Problem Set 2 Gains and Ricardian Page 1 of 2 Problem Set 2 Gains from Trade and the Ricardian Model 1. Use community indifference curves as your indicator of national welfare in order to evaluate the following claim: “An improvement in the terms of trade increases welfare only if the country increases its quantity of exports in response. If a country is unwilling or unable to increase exports when their price rises, then the price increase does it no good.” 2. Consider an economy that does not produce goods, but is simply endowed with certain amounts of them, and in which the population consists of two groups: farmers who own only wheat and weavers who own only cloth. (Never mind that these people don’t actually farm and weave – the names are just for convenience.) There are equal numbers of people in both groups, and they all share identical homothetic preferences for consuming wheat and cloth. a. Draw the production possibility frontier for this economy, and illustrate the autarky equilibrium. b.
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Set02-GainsRicardian - Econ 441 Problem Set 2 Alan...

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