Suppose that workers in A can produce 1 unit of S in 3 hours and ...

[dalyningkenk]

Suppose that workers in A can produce 1 unit of S in 3 hours and 1 unit of T in 9 hours. Suppose that the relative price of S in B is 2. Graph the PPF for country A. Indicate the exact slope of the PPF. Show how the autarky equilibrium is determined.
 
  Illustrate a hypothetical international trade equilibrium, including production and consumption points, and trade volumes for a given (your assumption-be explicit) but permissible value of the international terms of trade.

Question 2

According to the principle of subsidiarity, in which of the following areas should the authority for making decisions be taken from national governments and given to the EU?
 
  A) Pollution of a trans-national waterway
  B) Limits on the hours retails stores are allowed to be open
  C) Highway traffic laws
  D) Recycling requirements on packaging
  E) All of the above.

[Danny Ewald]

Answer to Question 1

The autarky price of S in A is 1/3, so that must be the slope of its PPF. A has comparative advantage in S, so once trade begins it must completely specialize in S. The international terms of trade must lie between 1/3 and 2.

Answer to Question 2

A