| Chapter
11 |
In
this problem we consider the effects of non-neutral factor growth in the
small country setting. Draw a production possibilities graph, with machine
tools on the vertical axis and textiles on the horizontal axis. Click
here
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Graph
the following curves by clicking here
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a.
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Draw
an international price line that is tangent to the PPF somewhere in the
middle of the PPF. Label this point of tangency "A" and mark
the equilibrium production levels of machine tools as y1
and of textiles as x1
on the respective axes.
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b.
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Suppose
the capital stock of this country grows, while the labor force remains
the same. How would the PPF shift? Draw the new PPF on your graph.
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c. |
Since
this country is small, it is unable to influence international prices. This
means that the new international price line will have the same slope as
the old one. Draw the new international price line tangent to the new PPF.
Label the new point of tangency "B" and mark the new equilibrium
production levels of machine tools and textiles on the respective axes as
y2
and x2. |
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d.
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Label
the equilibrium point "E."
Label equilibrium per capita consumption on the horizontal axis as c1,
and the equilibrium price-wage ratio on the vertical axis as (P/W)1.
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e. |
What
happens to production of machine tools? What happens to production of textiles?
Does your graph provide evidence in favor of or against the Rybczynski theorem?
Explain. |
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View
graphing answers to question 1 by clicking  |
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View
text answers to question 1 by clicking |