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The Standard Model of Trade:
1. Assume that Norway and Sweden trade with each other, with Norway exporting fish to Sweden, and Sweden exporting Volvos (automobiles) to Norway.
a) Suppose that due to overfishing, Norway becomes unable to catch the quantity of fish that it could in previous years. Explain and show graphically how this affects:
i) Norway's PPF
ii) The world relative price of fish (PF/PA)
iii) Norway's social welfare
iv) Could Norway ever end up better off as a result of overfishing? Explain and illustrate your answer graphically using indifference curve analysis.
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