Unformatted text preview: oves to the steady‐state c. Therefore, the highest steady state can be achieved only if the capital‐ labour ratio is pushed beyond the local steady state at b, hence justifying a “big‐push” development strategy for countries that are currently relatively poor; namely, that what is needed is very large scale investment in capital. Question 3 Part (a) (a) Consider the respective production possibilities curves for China and Australia, showing the efficient production points in both economies. Figure 1 mining c b a China manufacturing mining Australia c’ b’
M(0) I will interpret “competitive edge” to mean that Australia has a comparative advantage in mining. The pattern of comparative advantage is reflected in the relative slopes of the production possibilities curves. Suppose, for exposition, there is a common level of manufacturing in each country M(0); we then increase mining by the same amount in each country and ask in which country is the least amount of manufacturing forgone? It would be this country that would have a comparative advantage in mining. From the diagram, this is Australia. This is indicated by the horizontal distance b’c’, representing the manufacturing that is forgone in Australia when mining is increased, being less than the analogous horizontal distance for China, bc. Suppose in autarky, Australia and China...
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- Macroeconomics, Australia., relative price