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 finds that the international price ratio of agriculture relative to manufactured goods, pa/pm in world market is lower than price ratio in domestic market.

Use PPF and indifference curves to show how this country may gain from trade, identify trade triangle and include export and import quantities.

How will the size of the trade triangle, ie levels of export and import change when pa/pm in world market rises (but is still lower than price ratio in domestic market due to reduction in agriculture supply?

How will nominal wage rate (w) be affected when the country moves from autarky to trade? illustrate your answer graphically?

For workers that spend greater share of their income on agricultural goods, are they more likely to loose or gain from trade in terms of their income?