International Trade

3. a) Consider the two-good, two-factor HOS model with factor-immobility. Assume that the real wage of labour is sticky in terms of good 2 in the home country (small country). If the international price of good 2 is relatively lower than the autarky price at home, examine the post-trade equilibrium and gains from trade if any for the home country. Illustrate with a diagram. b) How would the analysis of part (a) change if factors are mobile (but wage rate continues to be sticky). Illustrate the autarky and post-trade equilibrium with a diagram