Monday, February 23, 2009

International Economics should satisfy the foreign language requirement

I'm in the middle of completing the practice assignment for Chapter 2 (Resources, Comparative Advantage, and Income Distribution: The Heckscher-Ohlin Model I) of my International Economics class, right?
I answer a question asking how many cars and computers "Midland," a made-up country, consumes with no trade. To my surprise (NOT!), I got it wrong. Well, this neat program we do our assignments on gives us feedback on our answers--and here's what Aplia, that program, told me in regard to the right answer:

"With trade, Midland's consumption choice must lie along the economy's budget constraint, which is a line that must satisfy two conditions. First, its slope must be minus the world relative price of cars in terms of computers (PA/PC). That is, consuming one less car must save the economy enough to purchase PA/PC computers. Second, Midland's budget constraint must be tangent to the economy's PPF, indicating the point where the value of production is maximized. Isovalue line V2 satisfies both these conditions. Thus, with trade, Midland's production choice is 140,000 cars and 240,000 computers. Among the suggested answer choices, only three imply consumption combinations that lie on the budget constraint: (1) 40,000 cars and 320,000 computers (i.e., 160,000 fewer cars and 208,000 more computers than the country consumes with no trade), (2) 140,000 cars and 240,000 computers (60,000 fewer cars and 128,000 more computers than with no trade), and (3) 240,000 cars and 160,000 computers (40,000 more cars and 48,000 more computers than with no trade). But given that Midland imports cars, the only possible consumption mix is (3). At this point, the economy imports 240,000 - 140,000 = 100,000 cars and exports 240,000 - 160,000 = 80,000 computers. If Midland's consumption mix were (1), the country would import computers and export cars, and if it were (2), Midland would consume the same combination of goods as it produces, so there would be no international trade."

I envy you people who know.
I mean, it's clearly in English, but I still don't understand a bit of it.