Question from Past Microeconomics Qualifying ExamEdit
Spring 2006 - Section II, Question four, George Mason University
Imagine a community of self-sufficient individuals who have initial endowments in both X and Y, different productive opportunities and tastes but having only production opportunities in goods X and Y. Graphically represent their productive optima (Q*) and consumptive optima (C*). Now the idea of market exchange has been discovered and the relative prices for goods X and Y differ from the rate suggested by (Q*) and (C*). Explain analytically (and show on the same graph): (a) the new productive (Q**) and consumptive (C**) optimum and (b) show also the nature of the gains available after the discovery of exchange opportunities. Answer the following related questions as true, false, or uncertain and briefly why:
- There would be no trade benefits with simply exchange opportunities if the individuals in this community had identical endowments and identical tastes.
- There would be no trade benefits if the individuals in this community had identical endowments, tastes and productive opportunities.
- Next - no next question y'all. You're done ;)
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