(Figure: Home and Foreign Autarky Equilibria) Which line in the graph represents Foreign's relative price of computers in terms of shoes? A) A B) B C) U D) U^*

Question

Quizplus · Accepted Answer

In autarky, the relative price of computers in terms of shoes for Foreign is represented by the slope of its production possibility frontier, which is equal to the opportunity cost of producing computers in terms of shoes. In this case, it is shown by the line labeled B, which has a slope of -2. In other words, in order for Foreign to produce one more computer, it has to give up producing two pairs of shoes.

(Figure: Home and Foreign Autarky Equilibria) Which Line in the Graph