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Suppose a country is producing two commodities: Automobile (A) and Lubricant (L). Price of automobile is PA while lubricant price is PL. Production and consumption
Suppose a country is producing two commodities: Automobile (A) and Lubricant (L). Price of automobile is PA while lubricant price is PL. Production and consumption of the goods are Qi and Di respectively where i {A,L}. [2 2 3=7 pt] a. Using the above information, prove that imports of lubricant equal exports of automobile times the relative price of automobile. b. Explain the whole situation for no-trade condition using proper illustrations. c. Suppose there is a rise in the relative price of automobile after allowing trade. Using the figure illustrated in part (b), how will you show
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