Draw the foreign countrys ppf and show the closed-economy

Reference no: EM133367708

1. Consider the Specific Factors model we discuss in class, but focus on the Foreign country. In particular, the Foreign country has the comparative advantage in the agricultural good (the A good). Going from no trade to free trade, PMT/PAT < PM*/PA* for the Foreign country. (8 points total, 2 points each).

(1). Draw the Foreign country's PPF and show the closed-economy equilibrium. Please label both axes.

(2) In your picture in (1) above, show the Foreign country's CPF, and its production choice and consumption choice under free trade.

(3) How does the opportunity cost of the M good change as the Foreign country goes from no trade to free trade? What is the intuition?

(4). Does the Foreign country gain from trade? What is the intuition?

Reference no: EM133367708

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