Explain why the overall gains from trade are still positive

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Consider the specific factors model we discuss in class. Suppose that when the Home country opens up to trade, the price of the M good relative to the A good decreases. In our class, we assume that this relative price increases.

1. Which good is exported and which good imported? Why?

2. How does the opportunity cost of the M good change, going from closed economy to free trade? Why?

3. Explain why the overall gains from trade are still positive.

Reference no: EM131003375

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