Suppose that a small country has a production possibility frontier (with two goods X and Y) displaying increasing opportunity costs. Suppose further that trade is beneficial and in equilibrium with trade, the country imports good X and exports good Y. Discuss how growth of labour used more intensively in the import good (X) affects the country’s welfare. Illustrate your answer with the country’s PPF diagram which shows the production and consumption equilibrium outcomes before and after growth.
Suppose that a small country has a production possibility frontier (with two goods X and Y) displaying increasing opportunity costs. Suppose further that trade is beneficial and in equilibrium with trade, the country imports good X and exports good Y. Discuss how growth of labour used more intensively in the import good (X) affects the country’s welfare. Illustrate your answer with the country’s PPF diagram which shows the production and consumption equilibrium outcomes before and after growth.
Chapter2: Productions Possibilities, Opportunity Costs, And Economic Growth
Section: Chapter Questions
Problem 8SQ
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Question
Suppose that a small country has a
goods X and Y) displaying increasing
trade is beneficial and in equilibrium with trade, the country imports good X
and exports good Y.
Discuss how growth of labour used more intensively in
the import good (X) affects the country’s welfare. Illustrate your answer with
the country’s PPF diagram which shows the production and consumption
equilibrium outcomes before and after growth.
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