In your answer to this question, use a diagram like Figure 4.3, making it large enough so that you can see the curves and quantities clearly. The no-trade point is as shown in Figure 4.3, a price ratio of 2 W / C and 40 units of cloth demanded. Sketch the derivation of the portion of the country’s cloth demand curve for cloth prices of 2 and below.

(To do this, examine a price of about 1.5, then 1.0, and then 0.5. In your analysis you will need to show additional community indifference curves—ones that exist but are not shown explicitly in Figure 4.3.)

Data From Figure 4.3

Transcribed Image Text:

FIGURE 4.3 Indifference Curves and Production Wheat (billions of units per year) Possibilities without Trade 80 S 12 50 50 So 20 20 40 Cloth (billions of units per year) Price ratio - 2 WIC