International Economics 8th Edition by Dennis Appleyard, Alfred Field

Exercise 8

In Figure, as one moves from S ? to V ?, is the country producing more or less of the capital-intensive good and less or more of the labor-intensive good? What should happen to the demand for labor and the demand for capital as this movement takes place? What will happen to relative factor prices? Will the slope of the isoquants at the point of tangency on the contract curve be the same at V ? as it was at S ? ? Why or why not?
FIGURE The Edgeworth Box and the Production-Possibilities Frontier

As discussed in the text, any point in the Edgeworth box diagram of panel (a) translates to a particular point in the production-possibilities diagram in panel (b). If production moves along the diagonal R ? T ? M ? W ? Q ? in panel (a), these output combinations follow straight line RTMWQ in panel (b). Points on the production efficiency locus R ? S ? V ? N ? Q ? in panel (a) translate to the production-possibilities frontier RSVNQ in panel (b).