International Economics: Homework 1

1) Chapter 2:

Use a graph to show how general equilibrium is reached when a country is subject to increasing opportunity costs.

a. Show the PPF with increasing opportunity costs.

b. Find and label the country's equilibrium production and consumption points and the relative price of S at equilibrium.

c. Show an alternative equilibrium that is not optimal – does not maximize consumer benefits.

2) Chapter 2:

a. Using the PPF describe how the national supply curve for Good S is found. No graphs are required here but you can include them if you like.

b. Using the PPF and CICs describe how the national demand curve Good S is found. No graphs are required here but you can include them if you like.

c. How is the domestic price of Good S determined?

3) Chapter 2:

a. Assuming autarky, in a two good economy what is the formula to calculate nominal GDP?