Use an Edgeworth allocation box, with chemical production in the southwest origin and labor on the horizontal axis, to show that unless the isoquants are tangent and explain what this means in economic terms that any allocation is not Pareto optimal.
Consider a standard Heckscher-Ohlin model of trade between the United States and the European Union, in which the only resources are capital (K) and labor (L), and the only goods are chemicals (C) and electronics (E), both produced under perfect competition, with constant returns to scale, diminishing marginal returns, identical technologies, and identical preferences, and … Read more