Q1 Q2 Q3 Q4 The diagram to the right shows the Home economys

Q1

Q2

Q3

Q4

The diagram to the right shows the Home economy\'s pretrade equiliorium at point X If this ecanamy apens ilself to trade, its consumption paint Now suppose that trade commences batwean Home and the rest of the world and, as a result, the relative price of coal in Home rises Sugar. Cs and Ds | its production point. Click an the disgram anywhere to activate the relative prics selector and use it to increase the pnce to 1.2 units of sugar (per unit af cos). Which pat of Homes budget constraint would represent choices in which Home\'s residents are unambiguously better off compared to their pretrade equilibium? O A. The entire budget constraint 0 B. The portion inside the shaded region. C. The portion outside the shaded region O D. No such choices exist 9 10 Coal: Oc & D

Solution

Answer for question 1 part b)

To be better off one should move in Northeast direction from its original position. This shaded region clearly depicts Northeast area hence inside this shaded region country is better off. Option B is correct response.

Answer to question 3)

If no trade is assumed then. Country consumes less than equal to what it produces hence it\'s consumption cannot occur outside PPF therefore Option B is correct response.

Answer to question 4)

Coal is labour intensive and home country has labour in abundance then in free trade home will produce all the coal and export it to foreign country therefore relative price of coal will increase in home country.

Goverment will be resistant towards opening a trade.