Salvatore
c03.tex
V2 - 10/26/2012
1:00 P.M.
Page 75
Problems
75
it decline as the nation consumes more of the com-
modity measured along the horizontal axis?
6.
What difficulties arise in the use of community
indifference curves in trade theory? How can these
difficulties be overcome?
7.
What is meant by the equilibrium-relative commod-
ity price in isolation? How is this price determined
in each nation? How does it define the nation’s
comparative advantage?
8.
Why does specialization in production with trade
proceed only up to the point where relative com-
modity prices in the two nations are equalized?
How is the equilibrium-relative commodity price
with trade determined?
9.
Why is there incomplete specialization in pro-
duction (even in a smaller nation) with increas-
ing opportunity costs? How are the results under
increasing costs different from the fixed-costs case?
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