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Autarky Equilibrium

Now we have all the information we need to look at Autarky equilibrium.  Remember that Autarky means no trade.  In the next lesson we’ll consider opening the model to free trade.

View the video presentation below.  You may also download the presentation that is used in the video.


Now that you have seen the video presentation about Autarky Equilibrium, check your understanding with the following practice question.

Practice Problem 2.3:  Autarky Equilibrium

Consider the following: A country is at a point on its PPF where the slope of the PPF is flatter (closer to horizontal) than the slope of the CIC touching that same point.

Is the following True or False?

The standard of living would rise if outputs of the two goods would change so as to move down along the PPF. 

Demonstrate GRAPHICALLY and explain.  Use the Chemicals and Textiles Autarky general equilibrium graph (include PPF and Indifference curves).  Make sure you label everything.
This statement is true. See the graph:

Problem 2.3 Image
The slope of the PPF tells us the cost of producing one more unit of the good on the horizontal axis. That is, it tells us the cost of moving down the PPF. The slope of the CIC tells how much society would value having one more unit of the good on the horizontal axis. In this case, society is willing to pay more than it would cost to obtain one more unit of the good on the horizontal axis. Hence a movement in that direction would raise the standard of living.

Watch the video below for a step-by-step explanation.

download the presentation for this video

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