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MGEC62H3 Lecture Notes - David F. Swensen, Indifference Curve, Autarky

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School
UTSC
Department
Economics for Management Studies
Course
MGEC62H3
Professor
Garth Frazer

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Document Summary

Suppose that another large country offers to trade with us at price pw. Our country will trade to reach the highest indifference curve possible where the indifference curve is. Tangent to the new line - there is only one of these points. We export ed hockey sticks and import d1c1 tuques. Trade triangle is ed,c legs of triangle are exports and imports and the hypothenuse is the price ratio. Maximize utilitiy u(eh,ct) subject to a constrained (budget line) Get to the highest indifference curve possible. Budget line: value of goods consumed = value of endowment. The only thing that matters is the relevant price. Value of imports = value of exports. Take endowment buy use income to buy goods. Russia: relatie price of hockey stilck ( ph/pt) in 5. So, a country is unambiguously better off after trade in this model. 2 individuals with identical preferences ( rudolph and shareen )

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Related Questions

To maximize​ utility, consumers choose a consumption bundle:

A. where the slope of the budget constraint is equal to the ratio of the good price on the horizontal axis divided by the price of the good on the vert axis (multiplied by minus one).

B. on the highest indifference curve given the budget constraint.

C. where indifference curves intersect one another. 

D. where the marginal utility of each product is maximized. 

E. where the slope of the highest indifference curve is equal to the marginal rate of substitution

We assume that each consumer seeks the highest indifference curve possible.

The budget line gives the combinations of two goods that the consumer can purchase with a given budget.

List and briefly describe the two conditions that satisfy utility maximization when selecting a combination of two goods.

Consumer equilibrium occurs where the budget line is _________ to the ___________ possible indifference curve.

A. Tangent; highest

B. Equal; lowest

C. Marginal; maximum

D. Differential; highest