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Unformatted text preview: Illustrate and carefully explain why, under certain conditions, the two countries can have an incentive to trade with each other. Why can they gain from trade? (30 points) 4. a. Draw offer curves for a two country-two good case to show a point of excess demand for good Y using the relative price line. Is the relative price of X higher or lower than the TOT? (10 points) b. In a separate graph, show how the TOT is affected if there is an increase in demand for good X in country I with everything else remaining constant. (10 points) c. If the income effect or the terms-of-trade effect is strong and dominant, how will a country respond when its TOT rises? Explain using a graph. (10 points)...
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This document was uploaded on 10/28/2011 for the course ECON 460 at UNC.
- Fall '08