International Economics

Tutorial Week 2
Chapters 3 and 4
Assigned Tutorial questions
• Review the key terms in Chapters 3 and 4.
• Solve Problems Qs 1- 4 of Chapter 3.
• Solve Problems Q1 of Chapter 4

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Questions 1
On one set of axes, sketch a fairly large
production frontier concave from the origin.
(a) Starting near the midpoint on the
production frontier, use arrows to show that
the nation incurs increasing opportunity costs
in producing more of X (the commodity
measured along the horizontal axis) and more
of Y.
(b) How does the slope of the production
frontier change as the nation produces more of
X? more of Y? What do these changes reflect?

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Questions 2
2. On another set of axes, sketch three community
indifference curves, making the top two curves cross
each other.
(a) Why have you drawn community indifference
curves downward, or negatively, sloped?
(b) What does the slope of the curves measure? Why
is the slope of each curve smaller for lower points?
(c) Which of the two intersecting indifference curves
shows a greater level of satisfaction to the right of
the point of intersection? to the left? Why is this
inconsistent with the definition of indifference
curves? What conclusion can you reach?

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 Question 3
On one set of axes, sketch a community indifference
*

curve tangent to the fairly flat section of a concave

production frontier.
On a second set of axes, sketch another (different)
community indifference curve tangent to the fairly
steep portion of another (different) concave
production frontier.
(a) Draw in the line showing the equilibrium relative
commodity price in isolation in each nation.
(b) Which is the commodity of comparative
advantage for each nation?
(c) Under what (unusual) condition would there be
no such thing as comparative advantage or
disadvantage between the two nations?

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Question 4
(a) On the graphs of Problem 3, show, for each
nation with trade, the direction (by an arrow
on the production frontier) of specialization in
production and the equilibrium point of
production and consumption.
(b) How much does each nation gain in
consumption compared with its autarky point?
Which of the two nations gains more from
trade? Why?

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 Answer the following questions

• Chapter 03_ Question 4 (a & b): 10 Marks

CHAPTER 03 – Question 01 (a)
1. On one set of axes, sketch a fairly large production
frontier concave from the origin ().

a) Starting near the midpoint on the production

frontier, use arrows to show how the nation incurs
increasing opportunity costs in producing more of
X ( the commodity measured along the horizontal
axis) and more of Y. ()

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 CHAPTER 03 – Question 03
• On one set of axes, sketch a community indifference
curve tangent to the fairly flat section of a concave
production frontier ().
• On a second set of axes, sketch another community
indifference curve tangent to the fairly steep portion of
another concave production frontier ().

• a) Draw in the line showing the equilibrium relative

commodity price in isolation in each nation ().
• b) Which is the commodity of comparative advantage for
each nation? ().
• c) Under which condition would there be no such thing as
comparative advantage between the two nations? ().
CHAPTER 03 – Question 01
1. On one set of axes sketch a
fairly large production frontier
concave from the origin.

a) Starting near the mid point on

the production frontier, use
arrows to show how the nation
incurs increasing opportunity
costs in producing more of X
and more of Y
CHAPTER 03 – Question 01 cont.
b) How does the slope of the production
frontier change as the nation produces
more of X? more of Y?
The slope of the transformation
curve increases as the nation
produces more of X
Slope at C > slope at A

The slope of the transformation

curve decreases as the nation
produces more of Y
Slope at F < slope at A

What do these changes reflect?

Increasing opportunity cost

CHAPTER 03 – Question 02
• On another set of axes, sketch
three community indifference
curves, making the top two
curves cross each other.
• a) Why have you drawn
community indifference curves
downward, or negatively
sloped?
• Because, as the
community consume
more of X, it will have to
give up some of Y to
remain on the same
indifference curve
CHAPTER 03 – Question 02 cont.
• b) What does the slope of the
curves measure?
• The slope measures how much
of Y the nation should give up to
consume one more unit of X and
still remain in the same
indifference curve.

• Why is the slope of each curve

smaller for lower points?
• Slope at B > slope at A
• At A, nation consumes more of X
and less of Y.
• If nation consumes an extra unit
of X, nation will receive less
satisfaction.
• But more satisfaction with an
extra unit of Y.
CHAPTER 03 – Question 02 cont.
• c) Which of the two intersecting
indifference curves shows a
greater level of satisfaction to
the right of the point of
intersection? To the left?
• To the right – III > II
• To the left – II > III
• Why is this inconsistent with
the definition of indifference
curves?
• An indifference curve shows a
given level of satisfaction
• What conclusion can you reach?
• Indifference curves cannot
cross
CHAPTER 03 – Question 03
• On one set of axes, sketch a
community indifference
curve tangent to the fairly
flat section of a concave
production frontier.
• On a second set of axes,
sketch another community
indifference curve tangent to
the fairly steep production of
possibility frontier

• a) Draw in the line showing

the equilibrium relative
commodity price in isolation
in each nation.
CHAPTER 03 – Question 03 cont.
• b) Which is the commodity of
comparative advantage for each
nation?
• Nation 1 has
comparative advantage
in X.
• Because
• PA= PX/PY < PA’
• Nation 2 has
comparative advantage
in Y.
• Because, PY/PX in
Nation 1 > PY/PX in
Nation 2
CHAPTER 03 – Question 03 cont.
• c) Under which
condition would there
be no such thing as
comparative advantage
between the two
nations?
• If the relative
commodity price line
has equal slope in both
nations
CHAPTER 03 – Question 04

• A) On the graph of problem 03, show for each

nation with trade, the direction of specialization in
production and the equilibrium point of
production and consumption
 CHAPTER 03 – Question 04 cont.

• B) How much does each nation gain in consumption compared with its
autarky point?

• Nation 1 gains by the amount of E (above and right to point A)

• Nation 2 gains by E’ (above and right to point A’)

• Which of the two nations gains more from trade? Why?

• Nation 1 gains more from trade. Because relative price of X (PX/PY) in

Nation 1 has changed more from its pre-trade condition than in Nation 2
CHAPTER 04 – Question 01

• Show graphically how the equilibrium relative commodity price

of commodity Y with trade can be derived.

• Answer is given in Section 4.2 pp 86-87