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Trade policy was an important topic for discussion in the UK in the early 1800s. Assume that the situation could be described by a type

Trade policy was an important topic for discussion in the UK in the early 1800s. Assume that the situation could be described by a type of trade model that we examined in the course with two countries (UK and France), two goods (clothes and food) and three factors of production (agricultural land, capital and labor). Capital could only be used to produce clothes, agricultural land could only be used to produce food and labor was mobile between the sectors. Assume that UK exported clothes and imported food. Now assume that the price of food fell because of developments in France. Illustrate the effect of the price change on production, consumption and welfare (as illustrated by indifference curves) in the UK, using a diagram with a production possibility frontier. What is the effect of such a fall in the price of food on incomes of owners of capital and of agricultural land in the UK?

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