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Explain how international trade results in a country consuming beyond its ppf
Explain how international trade results in a country consuming beyond its ppf.
2. Define the two characteristics of a public good. What is the free-rider problem? Will a competitive market be efficient? Explain. Z is a public good (e.g, a dam). Person 1’s values of Z is $10. Person 2’s value is $15. Person 3’s value is $20.If the market price is 25 dollars, does anyone buy it privately (the competitive outcome)?Derive the social demand (or marginal social value) of Z?Is the competitive output efficient? Explain using the concept of Pareto Efficient Exchange.
Expert Solution
1) With the help of international trade, a country can export those goods in which it has comparative advantage. Other goods, which cannot be produced in the domestic markets can be imported. So international trade leads to increase in the amount of goods available for the consumers both in the foreign and domestic countries and that too without any change in the resources available. That is how international trade helps to consume beyond PPF.
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