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Question 2 (20 marks = 5+10+5)- Suppose that the assumptions of the Standard Trade Model apply. Consider three countries: X, Y and Z. Consider two
Question 2 (20 marks = 5+10+5)- Suppose that the assumptions of the Standard Trade Model apply. Consider three countries: X, Y and Z. Consider two goods: A and B. X and Y export A and import B. Z exports B and imports A. Moreover, suppose that country Y (which is a large country) experiences economic growth in its import-competing sector. Explain in detail, using any relevant diagrams, what is the effect of this growth on the welfare of (a) X? (b) Y? (c) Z?
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