Question: Use standard trade model graphs to analyze trade for a country that has increasing cost production technology.

Question:Use standard trade model graphs to analyze trade for a country that has increasing cost production technology. For your graphs, put Good X on the horizontal axis and Good Y on the vertical axis. Be sure to draw correctly-shaped indifference curves. Label your axes, curves, and price lines. The graphs in part A and part B are for the same country, so use the same shaped PPF for both graphs. Also be sure that the indifference curves of the two graphs harmonize. (That is, if all the indifference curves from both graphs were put on just one graph, they wouldn't cross.)

A. High World Price of Y:  The world price of Good Y is greater than the country's no-trade price of Good Y.

A1. Draw a graph showing the country maximizing economic wellbeing for the no-trade case.

Label this point. Show the amount of Y production for the no-trade case.

A2. On the same graph show the country maximizing economic wellbeing for the trade case.

Label the production point and the consumption point. Show the amount of Y production for the trade case.

A3. What happens to the amount of Y production as the country changes from no-trade to trade?

A4. What happens to the country's economic wellbeing as it changes from no-trade to trade?

How do you know?

B. Low World Price of Y: The world price of Good Y is less than the country's no-trade price of Good Y.

B1. Draw a graph showing the country maximizing economic wellbeing for the no-trade case.

B2. On the same graph show the country maximizing economic wellbeing for the trade case.

Label the production point and the consumption point. Show the amount of Y production and the amount of Y consumption for the trade case.

B3. On the graph, show the amount of Y imports or Y exports and label it correctly as "imports" or "exports."

C: At what world price of Good Y can't the country gain from trade?