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(g) In the Foreign graph: Based on the pattern of trade derived earlier, draw the new world relative price ((PB/PC)T). Then draw the free-trade equilibrium,
(g) In the Foreign graph: Based on the pattern of trade derived earlier, draw the new world relative price ((PB/PC)T). Then draw the free-trade equilibrium, labeling the consumption point by C and the production point by B. Indicate clearly on the graph the quantity of beer and corn produced (QBT and QCT), the quantity of beer and corn consumed (DBT and DCT), and the quantity of imports and exports. Note: you do not have to solve for these exact quantities. (h) Does trade make the countries as a whole better or worse off? Are both the capital owners and workers in the Home country better off? What about the Foreign capital owners and workers? What can the Home and Foreign governments do? Hint: recall the Stolpher-Samuelson theorem. (g) In the Foreign graph: Based on the pattern of trade derived earlier, draw the new world relative price ((PB/PC)T). Then draw the free-trade equilibrium, labeling the consumption point by C and the production point by B. Indicate clearly on the graph the quantity of beer and corn produced (QBT and QCT), the quantity of beer and corn consumed (DBT and DCT), and the quantity of imports and exports. Note: you do not have to solve for these exact quantities. (h) Does trade make the countries as a whole better or worse off? Are both the capital owners and workers in the Home country better off? What about the Foreign capital owners and workers? What can the Home and Foreign governments do? Hint: recall the Stolpher-Samuelson theorem
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