"In the two-good, two-country model with increasing costs, the output quantities are determined only by considering society's preferences as illustrated with community indifference curves. However, in the same model, it is possible to determine the post-trade consumption point in each country without indifference curves." Are these statements true, false, or partly true and partly false? Justify your answer.
What will be an ideal response?
POSSIBLE RESPONSE: The community indifference curves reflect the preferences of the country's consumers for both goods. With or without trade, the output decision of a country will depend on both the technology and the available factors of production (summarized in the production-possibility curve) and the demands for the goods (summarized in the relative price ratio). Therefore it will not be possible to determine the output quantities without the production-possibility curve.
It is not possible to determine free-trade consumption in each country without community indifference curves as we will not know which consumption point is preferred by the consumers in the country. So, the given statement is false.
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How does a recession in Asia affect U.S. aggregate demand and the U.S. aggregate demand curve?
What will be an ideal response?
The market process will likely fail to fully coordinate supply and demand if transaction costs are
A) non-existent. B) significant. C) locally perverse. D) inconsequential.
Balanced across the board, U.S. income growth characterizes the period of the:
A. entire 20th century. B. 1960's to 1990's. C. mid 1940's to the early 1970's. D. 1980's to the present.
Using Figure 1 above, if the aggregate demand curve shifts from AD3 to AD2 the result in the short run would be:
A. P3 and Y1. B. P2 and Y1. C. P2 and Y3. D. P1 and Y2.