Wednesday, January 30, 2013

Terms of Trade

Alzheimer's problem of the day.  If Tony is in autarky at 65y and 35x, and he trades 2y:3x, what is the trading possibilities curve?

I assumed specialization in good y and traded away 32y for 48x.  I plotted the point 67y,48x.  Tony is better off since he now has 3 more y and 13 more x.

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