econ353-fall2009-ps3answers

econ353-fall2009-ps3answers - METU/FEAS Econ 353 Hakan...

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METU/FEAS 10.11.2009 Econ 353 Hakan Ercam Tuna Gönüldaş Görkem Karabayır PROBLEM SET 3- ANSWERS PART A: MULTIPLE CHOICES 1-D 2-C 3-D 4-B 5-B 6-D 7-B 8-B 9-B 10-A 11-C 12-D 13-A PART B: TRUE/FALSE 1-TRUE 2-FALSE 3-FALSE. The community indifference curves with different income distributions may intersect. 4- FALSE. Marginal rate of substitution (MRS) 5-TRUE 6-FALSE PART C: PROBLEMS 1) a) Under autarky the country produces where domestic price ratio (Px/Py) domestic is tangent to the PPF. Therefore, the country produces at point E . Under autarky, the country consumes where the SIC 1 is tangent o the PPF. Therefore, the country consumes at point E. Prior to trade, the social indifference curve of the country is given by SIC 1 At point E: MRT = MC X /MC Y = P X /P Y = MU X /MU Y = MRS b) (Px/Py) int >(Px/Py) domestic , the country produces good X cheapaer so the country has CA in
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econ353-fall2009-ps3answers - METU/FEAS Econ 353 Hakan...

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