Using our "Workhorse" Model of Production and Trade as developed in the lecture, suppose that a country is initially exporting good X. Its PPF then expands outward (we don't care about precisely why), making it possible for it to produce more of both X and Y. There are three possible ways the PPF could shift. One where the PPF shifts out uniformly, and X and Y increase in the same proportion. The second is a shift that is biased towards the production of Y. Finally, there is a shift that is biased towards X. Assume that the country is small enough that the world market price does not change as a result of its new PPF and production levels.

a. Sketch a graph for each of the three possibilities listed above. Include the PPF, the budget line, and indicate possible production/consumption points. In particular, it will be helpful to follow the techniques from a lecture about drawing these graphs, paying attention especially to how we identify the world price ratio and shift indifference curves.

Using your three graphs from part a, which (if any) of the following must be true, which might or might not be true, and which cannot be true? Refer to your graphs to justify.

b. It will produce more of good X.

c. It will produce more of good Y.

d. Its income will rise.

e. It will import more of good Y.