Consider a simple economy consisting of two countries, England and France. England has 25 workers and France has 75 workers. England can produce 4 units of grain and 2 units of cloth with each unit of labor. France can produce 1 unit of grain and 1 unit of cloth with each unit of labor. Wages per unit of labor are the same in both countries. c. Assume that consumers have utility ?=?????^(1/2) ⋅????ℎ^(1/2). How much does each country produce and consume of each good in autarky? Show the consumption graphically by drawing the indifference curves into your two diagrams. d. Now allow for trade. How much does each country produce and consume of each good in this case? Draw the new production possibilities frontier, indifference curves, and equilibrium point into your two diagrams, and indicate exports and imports. e. What is the utility of consumers in each country under free trade? How much does utility change relative to autarky?
Consider a simple economy consisting of two countries, England and France. England has 25 workers and
France has 75 workers. England can produce 4 units of grain and 2 units of cloth with each unit of labor.
France can produce 1 unit of grain and 1 unit of cloth with each unit of labor. Wages per unit of labor are
the same in both countries.
c. Assume that consumers have utility ?=?????^(1/2) ⋅????ℎ^(1/2). How much does each country produce
and consume of each good in autarky? Show the consumption graphically by drawing the indifference
d. Now allow for trade. How much does each country produce and consume of each good in this case?
Draw the new
diagrams, and indicate exports and imports.
e. What is the utility of consumers in each country under free trade? How much does utility change
relative to autarky?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
