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EXTERNALITIESDUE: 1: FREE TRADE: Suppose Home opens to free trade at the prevailing Free Trade Price (P W ). (2 points)a) Illustrate the free-trade equilibrium

EXTERNALITIESDUE:

1: FREE TRADE:Suppose Home opens to free trade at the prevailing Free Trade Price (PW).

(2 points)a)Illustrate the free-trade equilibrium output, consumption, and imports/exports for HOME.Just show in the diagram and discuss.

(2 points)b)Identify the Gains From Trade.Explain.

(1 point)c)Show and explain why Home can gain from free trade.Give the intuition.

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