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Ciz, a small isolated country, can produce a level x of agricultural commodities and level y of electronic products. Its production facilities and labour and land resources are such that production must satisfy x2+ y2 <=1000 .Every individual in Ciz has preferences over the two products represented by the utility function u(x; y) = xy. (Hence the society of Ciz will want to maximize u = xy.) Include an appropriate diagram in each part of the following analysis.(a) How much of each commodity should Ciz produce?(b) Suppose now that Ciz breaks its isolation and trades with other countries at fixed prices of 1 for agriculture and 3 for electronics. What should be the new production levels and the new consumption levels? Does utility in Ciz always increase with trade (at any prices) over the no-trade situation of part (a)? (c) Ciz notices that it can earn more in the international market producing electronics than it can producing agriculture, so it expands capacity so that its new production possibilities are x2 + 4/5y2<=1000 .Suppose all individuals in all the trading countries have preferences represented by u(x; y) = xy. Is the utility of all trading countries increased by Ciz's expansion? What do you expect to happen to the price of electronics (relative to agriculture) as a result of the expansion? (d) Suppose the new equilibrium price of electronics drops to p = 2 after Ciz expands its capacity. Does the utility in Ciz increase over that in part (b)?
[此贴子已经被作者于2006-12-2 21:37:06编辑过]
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