In the context of a Hecksher-Ohlin model of trade, consider a small open economy that produces two goods, X and Y, that each require unskilled labour, L and skilled labour, N. Assume that X uses unskilled labour intensively, while Y uses skilled labour intensively. Assume the world price ratio is greater than the autarky price ratio, such that. The country chooses to impose an export subsidy.

a) Draw the general equilibrium trade diagram to represent the above. What are the effects of this policy on the welfare of the economy in question? How is this demonstrated on your diagram?

b)What are the welfare implications of the policy on skilled versus unskilled labour? Justify your answer.

c)What are the effects of this policy on the volume of trade? How is this demonstrated on your diagram?

d)Demonstrate the export subsidy is actually a compound tax on both producers and consumers.

e)Suppose the country experiences growth in skilled labour. Show the effects on the terms of trade. is the country better off? Justify your answer.

Please answer as much as possible!