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4. (Extra Credit) Two agricultural economies, "Home" and
"Foreign" produce corn (C) and wheat (W). Home has an
endowment of 200 fields, each of which can produce either 2
units of corn or 2 units of wheat. Foreign has an endowment
of 300 fields, each of which can produce either 1 unit of corn
or 2 units of wheat. Consumers in both economies have
identical homothetic preferences represented by the utility
function: U(Dc, Dw) = DcDw (a) Draw the production
possibility frontiers for both economies (draw the production
of corn on the x-axis and of wheat on the vertical axis). (b)
Let Pc/Pw denote the relative price of corn. Put Pc/Pw on the
y axis and C/W on the x axis of a graph, and draw the relative
demand and supply curves for both economies in autarky (use
a different graph for each economy). Make sure to indicate
the coordinates of the point where both curves intersect. Do
these curves depend on the economies' endowments in terms
of number of fields? (C) Now assume that these economies
open up to international trade. Draw the world relative
demand and supply curves on a separate diagram. Indicate on
the diagram the coordinates of the intersection point between
the two curves and the level of the autarky and free trade
relative prices. (d) What is the pattern of production,
consumption and trade in this trade equilib- rium? Indicate
the quantities produced, consumed, exported and/or imported
in each country.
This study source was downloaded by 100000845429129 from CourseHero.com on 01-24-2023 21:41:07 GMT -06:00
https://www.coursehero.com/file/48800645/4-Extra-Credit-Two-agricultural-economies-Home-and-Foreign-prdocx/
This study source was downloaded by 100000845429129 from CourseHero.com on 01-24-2023 21:41:07 GMT -06:00
https://www.coursehero.com/file/48800645/4-Extra-Credit-Two-agricultural-economies-Home-and-Foreign-prdocx/
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