(a) Using the Edgeworth-Bowley production box, explain the derivation of the production…
(a) Using the Edgeworth-Bowley production box, explain the derivation of the production possibility curve for the 2-good case.
(b) A nomadic tribe in Lapland spends all its productive time hunting reindeer. Some of the reindeer meat is kept for consumption and the remainder is sold at a nearby trading station in return for other goods. It is observed that when the price of reindeer meat increases the amount the tribe is willing to supply decreases. Sketch this situation in a diagram, with axes ‘reindeer meat’ and ‘other goods’. (ii) Using this diagram, determine if reindeer meat is an inferior good to the tribe? (Continued) (iii) How does the analysis change if the tribe can hunt and trade fish as well as reindeer? Illustrate this using a production possibility curve.
(c) Hence, in general, what is the effect of a subsidy on the price of some good?