PROBSET4 - August 2004 Problem set 4 This exercise has...

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August 2004 Problem set 4 This exercise has three objectives. The first is to help make the Principle of Targeting second nature to you. Ask yourself “What is the quantity that I want to influence? What is the price (or set of prices) that I need to change in order to influence this quantity?” The second is to give you more practice working out equilibria and making comparisons using the by-now-familliar graphical construction. The third is to improve your understanding of the comparison between general and partial equilibrium models. In some cases you may be able to “guess” the answer before using the graphs. In that case, the graphs merely provide a means of outlining a proof. In other cases, the graphs may actually help you to find the answer. In either case, you should be sure to work on the economic intuition for the answer. Don’t be satisfied with a mechanical demonstration of the asnwer. Under free trade a small country imports food and exports cloth.
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PROBSET4 - August 2004 Problem set 4 This exercise has...

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