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:

  1. There would be no trade benefits with simply exchange opportunities if the individuals in this community had identical endowments and identical tastes.
  2. There would be no trade benefits if the individuals in this community had identical endowments, tastes and productive opportunities.


Other QuestionsEdit

  • Next - no next question y'all. You're done ;)
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