4 Caves/Frankel/Jones - World Trade and Payments: An Introduction, Tenth Edition

6.

In this diagram the autarky endowment is E with autarky prices for this individual of AEB. The

individual is then selling food to their fellow citizens and is consuming at G in autarky. After

trade, if the price of food falls to A'EB' this individual will be worse off. However, if the price of food falls a great deal to A"EB", the individual can import food and export clothing from their

fellow citizens to reach consumption at a point such as H. They will then obtain greater utility

than at G.

Multiple Choice Questions

Questions 1 through 5 concern Figure 2.5

The country has endowment at E. It faces autarky prices AEB. It can trade at relative prices represented by CED. After trade, the country has consumption represented by point F.

1. Exports for this country are represented by

Answer: (b)

2. Imports for this country are represented by

Answer: (a)