2. Assume that a small country considers opening up for trade with a much larger neighboring country. However, the small country is less productive than the large country at producing any good. This question asks you to apply the Ricardian model of international trade to evaluate the following problem.

Assume that the small country needs 20 workers to produce a car and 10 workers to

produce a kilo of apples. The large country needs however only 5 workers to produce a car

and 5 workers to produce a kilo of apples.

a) Describe the relative autarky prices in the two countries, and how much of each good that

workers can consume under autarky.

Explain your answer.

b) Describe how prices change when the countries open up for free trade. Assume that the

large country is so large that its prices are not affected by trade with the smaller country.

Explain your answer.

c)

How much can workers in the two countries consume of each good once the countries have opened up for trade?

Explain your answer.