On two sets of axes, draw identical concave production possibility frontiers with different community indifference curves...

On two sets of axes, draw identical concave production possibility frontiers with different community indifference curves tangent to them.

What would have happened if the two countries have identical indifference curves? Is it possible that both countries get better off by having trade each other? (Sketch a graph of this situation

Expert Solution

The consumer expects to get the same level of satisfaction from the consumption of any of the marked four combinations of the two commodities of both countries, namely A, B, C, and D. The resultant curve is known as the indifference curve.

we can draw different levels of satisfaction. These can be represented in the form of an indifference map. In the figure, we have presented a set of four curves. Combination marked A1 and B1 yield an equal level of satisfaction represented by the indifference curve IC1. Combination marked A2 and B2 yield an equal level of satisfaction represented by the indifference curve IC2, but the level of satisfaction represented by IC2 is higher than that represented by IC1.

Likewise, the level of satisfaction represented by IC3 is higher than that on IC2 and that on IC4 higher than on IC3. In other words, as we move towards the right, each indifference curve represents a higher level of satisfaction.

A set of indifference curves is called an indifference map.

As a result, we can say both countries can get better by trading with each other.

Rahul Sunny answered 2 years ago

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