Assume that a country produces two goods, agriculture (which requires land and labor) and manufactured goods (which requires labor and capital), and is currently in autarky equilibrium. The country just finds that the international price ratio of agriculture relative to manufactured goods, i.e., P_A/P_M, in the world market is higher than the price ratio in its domestic market.

a.Should this country trade? If so, which product should it export?

b.Will it gain from trade? Illustrate your answer graphically using production-possibilities frontier (PPF) and indifference curves. In the same graph, identify the trade triangle, including export and import quantities.

c.How will the size of trade triangle, i.e., the levels of export and import quantities, in the above question change when the country introduces a limit on its imports? Illustrate your answer graphically.

d.How will the relative nominal wage rate, i.e., the ratio of nominal wage rate relative to nominal capital rental rate (w/r), in this country be affected by trade? Illustrate your answer graphically.