B1. (15 marks) Consider a 2x2x2 Heckscher-Ohlin model with two countries: Australia and Greece; two goods: wine and cheese; two inputs: labour and capital. Suppose that Greece is capital abundant, and you are given the following information about production in Australia: Australia Autarky Free Trade Wine production 200 litres 300 litres Wine consumption 200 litres 250 litres Cheese production 200 litres 150 litres Cheese consumption 200 litres 250 litres a. (8 marks) Using the production possibility frontier diagram, show how Australia can be better off once it engages in trade. Explain your answer. b. (4 marks) Suppose a tariff on importing goods increases the relative price of the import-competing sector's output in Australia. How does the Stolper-Samuelson theorem predict about changes in factor prices in Australia? Why? Use a graph to support your answer. c. (3 marks) According to the Heckscher-Ohlin model, free trade would lead to an equalization of wage rate internationally. Explain why we do not observe that result in the real world, where, for instance, there is great discrepancy in wage rate between developed and developing countries