Use the 'Standard Model of Tradeegthe Relative demand -relative supply framework in the following.Assume that Land is
Question:
Use the 'Standard Model of Trade"egthe Relative demand -relative supply framework in the following.Assume that Land is specific to AG and Capital is Specific to MANU.
Autarchy versus FreeTrade:Suppose Home and Foreign have identical endowments and technologies but Home hasdemand biased towards MANU.
a)Depictthis in the 'standard model of trade' as per class notes.Explain why relative demands and/or relative supplies will differ and how.
b)Compare prices, production, and consumption in each country in autarchy.Who has the lower relative price of manufacturing (PM/PA)?explainwhy (egintuition).
c)What happens to prices, production, and consumption in each country when we open to freetrade?Who exports AG?Who exports MANU?Explain.Relate this to changes in (PM/PA) in each country
d)Do we getGains from Trade?Who gains? Do some lose? Explain.Give the intuition.
e)Will Land owners in HOME support free trade?Explain.