The name is absent

Equating p^A? with p^A* we find that

1 + c(v — 1) + cv
b? = —-----;-----r-----

1 + c(v — 1) + v

Figure 2 shows the autarky price as a function of the budget. Notice
that if b ~≥ ⅜ (1 + c) the size of the budget constraint under autarky is not
binding.

c

2 + c ( v -1)

1 + c ( v -1) + cv

1 + c ( v -1) + v

1(1 + c )    ^b

Figure 4: Autaky Price Function

5 Trade

Suppose that the small economy trades with the rest of the world at the
world price p* and that the government does not adjust its education policy.

14

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