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1. The classical trade theories of mercantilism, absolute advantage and comparative advantage address the various components within international trade of how and why nations devote
1. The classical trade theories of mercantilism, absolute advantage and comparative advantage address the various components within international trade of how and why nations devote resources to the production of goods. However, these three theories have their similarities and differences. Elaborate on the similarity and differences between the three trade theories. (10 marks) 2. Suppose that, from an initial consumer equilibrium position, the price of one good falls while the price of the other good remains the same. Using indifference curve analysis, explain how and why the consumer's relative consumption of the two goods will change (10 marks) 3. Even though their relative factor abundances differ widely, both India and the United States export similar agricultural products such as rice. What might explain this apparent contradiction of the Heckscher-Ohlin model? (10 marks)
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