Dell

1.

If the price of both goods rise by 10 percent, the slope of the budget line will not change and the budget line will move towards left because the customer money income will not change. The customer. Because the new budget line will limit the goods individuals consume compared to the past, this will decrease the level of satisfaction from a given money income. It would not be acceptable for an economist to say that the level of the satisfaction of the consumer fell by exactly 10 percent. Because the assumption assume that the customers can only consume two goods. But actually the consumers can find out new substitutions to maximize their satisfaction level. So the level of satisfaction of consumer may not fall by exactly 10 percent.

2.

This statement is correct. Firstly when the two countries have identical PPFs, we can illustrate it using the following picture.

[pic 1]

The difference of the demands between these two countries will lead to a different combination of those goods in the two countries. The international price line will move to (x3, y3). So the indifferent curve will move towards right and we know each country can gain benefits from trade.

Secondly, if the two countries have identical taste but different PPFs, their autarky prices still be different. Evan if the demand conditions are the same, different supply conditions will cause difference in APRS across countries, and so each country can gain benefits from trade.

Finally, if both countries have the identical PPFs and taste, the change of increasing opportunity costs will cause decrease of consumer’s satisfaction level. And of course, the country can not gain benefit from the trade.

3.

a. X=20/1=20

b. X=46/2=23

c. X=69/3=23[pic 2]

d. X=84/4=21

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4.

a. Net barter= price of exports/ price of imports* base-year price index= (112/108) *100=103.7

b. Income terms of trade= price of exports/ price of imports*quantity of exports = (112/108)*94=97.5