A fall in the relative price of minerals implies an

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Unformatted text preview: a’ T manufacturing Figure 3 mining T Australia MI(P) b’ a’ c’ MI(C) T MA(P) manufacturing MA(C) Part (b) I would argue that Jakobsen is correct; should there be a fall in the relative price of minerals, efficiency would be achieved by moving resources away from mining towards manufacturing. The lower panel of Figure 2 can be used to support this argument. Given the exchange ratio implied by the slope of TT, efficient production takes place at b’. A fall in the relative price of minerals implies an exchange ratio that will be steeper than TT; an extra unit of mining now exchanges for less manufacturing than was previously the case/an extra unit of manufacturing now exchanges for more...
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