(d) Determine the optimal consumption and production at Home and Foreign under autarky. Depict this situation in a graph that includes each country’s PPF and indifference curves for the representative consumer. Consider a world composed of two countries, Home (H) and Foreign (F). Individuals living in each countryi = H, F have preferences over two goods x and y.In each country there is only one factor of production, labour, which is perfectly mobile between industries butimmobile between countries. The total labour endowment at Home is Īμ = 10 and the total labour endowmentin Foreign is LF = 10.The marginal product of labour in each industry is constant. At Home, one worker can produce 2 units ofgood x or 1 unit of good y per unit of time; at Foreign one worker can produce 1 unit of good x or 2 units of goody per unit of time.Assume that consumers in Home and Foreign always consume goods x and y in the same quantity regardlessof their prices. That is, Cri'xi = Cyi, i = H, F.

Autarky refers to a situation where a country or economy is self-sufficient and does not engage in…

Answered: Consider a world composed of two…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

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(d) Determine the optimal consumption and production at Home and Foreign under autarky. Depict this situation in a graph that includes each country’s PPF and indifference curves for the representative consumer.

Consider a world composed of two countries, Home (H) and Foreign (F). Individuals living in each country
i = H, F have preferences over two goods x and y.
In each country there is only one factor of production, labour, which is perfectly mobile between industries but
immobile between countries. The total labour endowment at Home is Īμ = 10 and the total labour endowment
in Foreign is LF = 10.
The marginal product of labour in each industry is constant. At Home, one worker can produce 2 units of
good x or 1 unit of good y per unit of time; at Foreign one worker can produce 1 unit of good x or 2 units of good
y per unit of time.
Assume that consumers in Home and Foreign always consume goods x and y in the same quantity regardless
of their prices. That is, Cri
'xi = Cyi, i = H, F.

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