Homework Answers
We know under autarkic equilibrium the tangent represents the relative quantities of goods consumed and hence the slope of the tangent represents the relative price of good in x-axis to the good in y-axis.
- Since Both in Portugal and England the Food is in the y-axis.
- So relative price of food (PFood/Pwine )= 1/Slope of tangent.
- Slope of a line = y/x
In Portugal
We can see Slope = 100/100 = 1
Now Relative Price of Food (Pfood/Pwine) = 1/1 = 1
In England
Slope = 120/60 = 2
So, Relative Price of Food (Pfood/Pwine) = 1/2
If Price of Food is £60 in England :
So, As Relative Price of food in England = 1/2
So, £60/Pwine = 1/2
PWine = £60/(1/2) = £60 * 2 = £120
So, The price of wine in England is £120
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