Autarky Equilibrium Quiz
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Questions and Answers

What does the condition $LC + LG = L$ signify in an economy operating under autarky?

  • Sector G must produce more than Sector C.
  • Labor can be ignored for production in equilibrium.
  • All available resources must be concentrated in one sector.
  • The total labor must be allocated between two sectors. (correct)
  • In the context of factor allocation in equilibrium, what does the symbol $ϕC$ represent?

  • The ratio of goods produced in both sectors.
  • The share of total available labor employed in sector C. (correct)
  • Total production in sector C.
  • Capital utilized in sector G.
  • What is the significance of the equations derived in the context of equilibrium relations?

  • They express relationships among inputs to maintain equilibrium. (correct)
  • They determine the optimum price for goods produced.
  • They show how labor affects capital allocation.
  • They illustrate the importance of monopolistic production.
  • What does the equation $I = r · K + w · L$ represent?

    <p>The total income generated from labor and capital.</p> Signup and view all the answers

    What does the term equilibrium level imply in the context of production?

    <p>It indicates the simultaneous maximization of inputs in both sectors.</p> Signup and view all the answers

    How is the equilibrium condition related to the allocation of the two inputs in the sectors?

    <p>It necessitates all factors to be fully employed across both sectors.</p> Signup and view all the answers

    Which of the following statements is true about consumption under autarky?

    <p>There is a combination of goods produced for domestic use only.</p> Signup and view all the answers

    What does the parameter $δC$ represent in the allocation equations?

    <p>The rate of return on investments in sector C.</p> Signup and view all the answers

    What does the term 'autarky' refer to in economic terms?

    <p>A closed economy with no trade</p> Signup and view all the answers

    How does the Production Possibility Frontier (PPF) relate to the income line in a closed economy?

    <p>The PPF coincides with the income line</p> Signup and view all the answers

    What does the equation $C = \frac{1}{aC} \cdot \phiC \cdot L$ represent?

    <p>The total consumption in relation to the total labor employed in sector C</p> Signup and view all the answers

    What does the term 'optimal production values' refer to?

    <p>Values representing the production that meets consumer preferences</p> Signup and view all the answers

    What is the significance of $ heta_C = \delta_C$ in equilibrium?

    <p>It shows the share of workers matches the share of income consumed on good C</p> Signup and view all the answers

    What is a defining feature of the equilibrium condition in the neoclassical version of the Ricardian theory?

    <p>The slopes of PPF and the income line are equal</p> Signup and view all the answers

    Which of the following accurately describes the term 'factor allocation' in relation to production?

    <p>The distribution of labor that leads to maximum output</p> Signup and view all the answers

    In the context of autarky, what is the relationship between production and consumption?

    <p>Production equals consumption, as there is no trade</p> Signup and view all the answers

    What does the Lagrange multiplier λ represent in the context of this problem?

    <p>The shadow price of the constraint.</p> Signup and view all the answers

    Which equation represents the income constraint in the model?

    <p>I = PC · CC* + (1 - δC)/δC · PG · CG*</p> Signup and view all the answers

    What do CC* and CG* represent in the context of this model?

    <p>Optimal consumption values of goods C and G.</p> Signup and view all the answers

    Which scenario is NOT addressed when calculating the equilibrium in the Ricardian model?

    <p>Closed economy equilibrium.</p> Signup and view all the answers

    How is the optimal value CC* derived from the income constraint?

    <p>Through substitution using the equality of total output and total consumption.</p> Signup and view all the answers

    In the first-order condition ∂L/∂CG = 0, what does it imply about the utility maximization?

    <p>Marginal utility per dollar spent is equal for both goods.</p> Signup and view all the answers

    If δC represents the share of income allocated to good C, what is the relationship between CC* and total income I?

    <p>CC* is directly proportional to δC and I.</p> Signup and view all the answers

    Which factor is implied in the calculation of CG* according to the model?

    <p>The share of income not allocated to good C.</p> Signup and view all the answers

    Study Notes

    Autarky Equilibrium

    • In autarky, both goods are produced and factors are allocated across sectors.
    • All factors must be used with the following conditions holding:
      • The sum of labor in both sectors equals the total available labor.
      • The sum of capital in both sectors equals the total available capital.
    • The equilibrium level of production of good C is determined by the share of labor allocated to sector C, the productivity of sector C, and the price of good C.
    • The equilibrium level of production of good G is determined by the share of labor allocated to sector G, the productivity of sector G, and the price of good C.
    • In autarky, the production possibility frontier (PPF) coincides with the income line.
    • The terms of trade are equal to the ratio of production technical coefficients.
    • The equilibrium level of consumption of good C is a ratio of the share of income on good C and the total income, divided by the production technical coefficient.
    • The equilibrium level of consumption of good G is a ratio of the share of income on good G and the total income, divided by the production technical coefficient.
    • In equilibrium, the share of income consumed on good C corresponds to the share of workers employed in sector C.
    • The equilibrium is represented graphically by the point where the marginal rate of transformation (MRT) equals the ratio of the prices of the two goods.

    Open Economy Equilibrium

    • The open economy equilibrium is a state where the production and consumption levels of each good are determined by both domestic and foreign demand and supply.
    • In a two-country model, the open economy equilibrium is characterized by the equalization of both relative prices and relative wages across countries.
    • The equilibrium is reached through trade, where each country specializes in the production of the good where it has a comparative advantage and trades it for the other good.
    • The equilibrium is influenced by factors such as the relative prices of goods, relative wages, and the size of the countries in terms of labor and capital.
    • The equilibrium is reached through a process of adjustment where countries move from autarky to open economy equilibrium.
    • The equilibrium is graphically represented by the point where the PPFs of both countries intersect at the terms of trade, which is the relative price of both countries' goods.

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    Description

    Test your knowledge on autarky equilibrium concepts, including the allocation of labor and capital across sectors and the production possibility frontier. This quiz will cover the determination of equilibrium levels for goods based on productivity and income ratios. Challenge yourself to understand the intricate balance of self-sufficient economies!

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