Example3

Example3 - relative price of X is higher in the foreign...

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Example 3: Gains from Trade 1. Consider a two-good model. Draw a PPF and show a point where MRT of Y for X is higher than the relative price of X. Explain why this is NOT the optimal point of production for a country. Be sure to use price and marginal cost to explain. 2. Show autarky equilibrium in a graph(Be sure to define in terms of MRT, relative prices and relative marginal cost).
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3. Now assume a two-good, two-country model. Also assume that the international
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Unformatted text preview: relative price of X is higher in the foreign than at home, and the two countries trade. (a) Assume that the home country cannot change its production. Show the increase in the home country’s welfare. What is this gain called? (b) Assume that the home country is able to move its resources from the production of one good to another. Show the increase in the home country’s welfare. Also, show the trade triangle....
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This note was uploaded on 10/24/2010 for the course ECON 460 taught by Professor Staff during the Fall '08 term at UNC.

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Example3 - relative price of X is higher in the foreign...

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