Consider a simple two-good economy, the production possibility frontier for the
ID: 1121846 • Letter: C
Question
Consider a simple two-good economy, the production possibility frontier for the economy, and the set of indifference curves representing individuals’ preferences for these goods. Quantities of good x produced and consumed are plotted on the horizontal axis. Quantities of good y produced and consumed are plotted on the vertical axis. This economy is initially closed to trade. Assume this economy starts allowing international trade. Refer to Figure 1. After trade, this economy imports ___________ units of good _______________, where g is either x or y. (NOTE: Write your first answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. Use a period for the decimal separator and a comma to separate groups of thousands. Write your second answer in lower case letter.)
13 World prices E Pre-trade pricesExplanation / Answer
At World prices, the economy is producing 8 units of good X and 4 units of good Y but consuming 3 units of good X and 13 units of good Y.So the economy is exporting 1 unit of good X and importing 9 units of good Y.