Between October 1, 2018 and December 26, 2018, the world price of crude oil fell from $75.30 to $46.22 a barrel. In comparison, the world price index of manufacturing goods has changed relatively little during this time period. Nigeria is a major exporter of oil and an importer of manufactured goods, while Japan is a major exporter of manufactured goods and an importer of oil. Use the Ricardian model as an analytical framework to depict graphically the welfare effects of autarky versus trade and then the effects of the drop in the price of oil on the Nigerian and Japanese economies in the trading equilibrium. (20P)

a. Given the info above, which country has a comparative advantage in which good? (2P)

b. Assuming both countries would produce both goods under autarky and assuming standard indifference curves, draw the autarky and the free trade equilibria for both Nigeria and Japan. (Hint: compare the autarky with the trade equilibrium in one graph for each country; label consumption points as C and production points as P). (8P)

c. How has the drop in the price of oil affected Nigeria's terms of trade? Japan's terms of trade? (2P) d. Starting from a trade equilibrium, use a graph to illustrate how the drop in the price of oil has affected consumption opportunities in Nigeria and Japan. Illustrate with one graph for each country. (8P)

My teacher wants us to answer the question like this: a. Japan has a comparative advantage in ______________and Nigeria has a comparative advantage in _______________. b. Draw a graph for each country (with oil being on the horizontal axis) c. Nigeria's terms of trade has________________________and Japan's terms of trade has _____________________ d. Draw a graph for each country (with oil being on the horizontal axis)