2. International Trade Models ECN 3860 International Economics

3. Why Nations Trade 4 International trade provides us with a variety of goods and services from other countries; 4 International trade promotes specialization and efficiency in production; and 4 International trade provides a source of income and employment for the countries involved

4. Production Possibilities Frontier Production Possibilities Frontier (PPF) shows all possible combinations of two products (Consumer Goods and Capital Goods) that a country can produce with available technology and full employment of all resources. Capital Goods Consumer Goods PPF 0

5. Production Possibilities

6. Indifference Curves An Indifference Curve represents all combinations of market baskets that provide a consumer with the same level of satisfaction.

7. Characteristics of Indifference Curves 4 Indifference curves are continuous and every- where dense; 4 Indifference curves slope downward to the right; and 4 Indifference curves do not intersect; C K 0 U1U1 U2U2

8. General Equilibrium PPF U K C E KEKE CECE O