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Unformatted text preview: the figures in problem 3, and add a new indifference curve (U2) for each country in the trade equilibrium. Answer: See the following figures. (NOTE: If the two countries do not have the same indifference curves, there is no unique answer. The following figures illustrate one solution. If, however, the two countries have the same indifference curves, then the only solution is that each country consumes 6 cars and 6 TVs.) ECON 6032 International Trade and Foreign Direct Investment Prof. Larry Qiu c. Label the exports and imports for each country. How does the amount of Home exports compare with Foreign imports? Answer: See the graph in part (b). The amount of Home exports of cars is equal to the amount of Foreign car imports. In addition, Home imports of televisions equal Foreign exports of televisions.
d. Does each country gain from trade? Briefly explain why or why not. Answer: Both Home and Foreign benefit from trade relative to their no‐trade consumption because they are able to consume at hi...
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This document was uploaded on 04/07/2014.
- Spring '14