C. Consider the initial effective output mix of a country is at point A on the...

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C. Consider the initial effective output mix of a country is at point A on the top panel and A' at the bottom panel. Suppose it has an earthquake destroying a lot of physical capital and its PPF has a biased contraction. (3) Note: This part of the question is not directly related to parts a and b. Qy, Dy An isovalue line and its slope is P1 Px خواتم Py PPF A, initial efficient output mix New PPF P1 A' RS of X RD for X Relative quantity Qx, Dx Holding the relative price of X constant, (1) use the two-step method to determine the new optimal output mix, maximizing the value of production on the top panel of the previous page. Explain what happens to the RS of X. Then determine the new optimal consumption bundle, maximizing utility, using the new isovalue line in your diagram. (2) At the initial equilibrium relative price of X, P₁, which good market has an excess demand and which one has an excess supply based on your analysis in #1? Explain how the relative price of X needs to adjust for clearing both good markets. Draw the new RS curve of X to show the new equilibrium relative price of X at the bottom panel. C. Consider the initial effective output mix of a country is at point A on the top panel and A' at the bottom panel. Suppose it has an earthquake destroying a lot of physical capital and its PPF has a biased contraction. (3) Note: This part of the question is not directly related to parts a and b. Qy, Dy An isovalue line and its slope is P1 Px خواتم Py PPF A, initial efficient output mix New PPF P1 A' RS of X RD for X Relative quantity Qx, Dx Holding the relative price of X constant, (1) use the two-step method to determine the new optimal output mix, maximizing the value of production on the top panel of the previous page. Explain what happens to the RS of X. Then determine the new optimal consumption bundle, maximizing utility, using the new isovalue line in your diagram. (2) At the initial equilibrium relative price of X, P₁, which good market has an excess demand and which one has an excess supply based on your analysis in #1? Explain how the relative price of X needs to adjust for clearing both good markets. Draw the new RS curve of X to show the new equilibrium relative price of X at the bottom panel.

Answer rating: 100% (QA)

Certainly lets analyze the scenario based on the information provided TwoStep Method and New Optimal Output Mix 1 Isocost Line Since the relative price of good X remains constant the isocost line will ... View the full answer