Class exercise-Neoclassical Trade Model Use the Graph below to answer the questi
ID: 1140788 • Letter: C
Question
Class exercise-Neoclassical Trade Model Use the Graph below to answer the questions Country A Country B x, x, 1. Which country exports good X, which country imports good X? Explain 2. Mark is the relative price line for country A and country B in the graph before trade. 3. At Autarky (pre-trade), which point represents production point for country A? Which point represent consumption point for country A? 4. At Autarky (pre-trade), which point represents production point for country B? Which point represent consumption point for country B? 5. With free trade, which point represents production point for country A? Which point represent consumption point for country A? 6. With free trade, which point represents production point for country B? Which point represent consumption point for country B? 7. Mark the imports and exports for each country in international trade. In graph, draw trade triangleExplanation / Answer
1 Country A imports Good X; the country moves to a higher indifference curve, produces more of Y, imports X; the production in the country decreases. The point depicting the utility is outside the PPF.
2 relative price lines are the ones tangential at the points E, and, e respectively for countries A, and, B respectively.
3 In case of autarky, production, and, consumption point is the same, at E.
4 e is the point for consumption & production in case of autarky.
5. E', and, C' are the production, and, consumption points for Country A. The country exports X, and, imports Y.
6. e', and, c' are the production, and, consumption points for Country B. The country imports X, and, exports Y.