Figure: Upperia's Production and Consumption (Figure: Upperia's Production and Consumption) The graph shows
Upperia's international trading pattern.What is the autarkic price of
Shirts in Upperia?
A)5/4 shirts per unit of pair of shoes
B)4/5 shirts per unit of pair of shoes
C)5/4 pair of shoes per shirt
D)4/5 pair of shoes per shirt

Question

Figure: Upperia's Production and Consumption  (Figure: Upperia's Production and Consumption) The graph shows
Upperia's international trading pattern.What is the autarkic price of
Shirts in Upperia?
A)5/4 shirts per unit of pair of shoes 
B)4/5 shirts per unit of pair of shoes 
C)5/4 pair of shoes per shirt 
D)4/5 pair of shoes per shirt

Quizplus · Accepted Answer

The autarkic price of shirts in Upperia is the slope of the production possibility frontier (PPF), which is the tangent line at the origin. The tangent line intersects the horizontal axis at 4/5 pair of shoes per shirt, so the autarkic price of shirts is 4/5 shirts per unit of pair of shoes. To maximize utility, Upperia should consume at point C where the ratio of shirts to shoes is equal to the slope of its consumption indifference curve, which is also 4/5 shirts per unit of pair of shoes. Therefore, the best choice is to produce and consume domestically, without trading with other countries, at point C.