A free-trade equilibrium exists in which Australia exports food and imports clothing. Australian engineers now invent a new process for producing clothing at a lower cost. This process cannot be used in the rest of the world.<\/p>
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i. What is the effect on Australia's production-possibility curve?<\/p>
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ii. What is the effect on Australia's willingness to trade? (Assume that Australia remains an importer of clothing.) Briefly discuss one reason to support your answer.<\/p>
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iii. Assuming that the change in Australia is large enough to affect international prices, will the equilibrium international price of clothing rise or will it fall? Briefly explain.<\/p>
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