"In the two-good, two-country model with increasing costs, the output quantities are determined only by considering society's preferences as illustrated with community indifference curves. However, in the same model, it is possible to determine the post-trade consumption point in each country without indifference curves." Are these statements true, false, or partly true and partly false? Justify your answer.
What will be an ideal response?
POSSIBLE RESPONSE: The community indifference curves reflect the preferences of the country's consumers for both goods. With or without trade, the output decision of a country will depend on both the technology and the available factors of production (summarized in the production-possibility curve) and the demands for the goods (summarized in the relative price ratio). Therefore it will not be possible to determine the output quantities without the production-possibility curve.
It is not possible to determine free-trade consumption in each country without community indifference curves as we will not know which consumption point is preferred by the consumers in the country. So, the given statement is false.
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An example of a supply shifter is:
A) demographic characteristics. B) technology. C) income. D) consumer expectations.
Refer to Table 19-1. Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals
A) 3,090 units. B) $7,250. C) $8,750. D) $9,750.