Question

17. In the following graph showing indifference curves for country A (a) and for country B (b) in a situation where both countries have the same production possibilities frontier, in autarky, Px/Py in country A is Px/Py in country B, and, if trade begins, country A will export good good Y sood X a. less than; X b. less than; Y c. greater than; X d. greater than; Y 18. Given the following diagram showing a fixed-quantity production-possibilities frontier, a community indifference curve, and the associated autarky price line, if this country is opened to trade through exposure to different relative prices, the country can attain good Y good X a, both a "production gain" ("gains from specialization") and a "consumption gain" ("gains from exchange"). b. neither a "production gain" ("gains from specialization") nor a "consumption gain" ("gains from exchange"). c. a "consumption gain" ("gains from exchange") but not a "production gain" ("gains from specialization"). d. a "production gain" ("gains from specialization") but not a "consumption gain" ("gains from exchange").

Answer 1

17) (a) less than; X

From the graph, we deduce that Px/Py in country A is less than Px/Py in country B. So therefore country A will export X.

18) (c) a “consumption gain” (“gains from exchange”) but not a “production gain” (“gains from specialization”)