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Q. Using the diagram, show what happens to the composition of production (that is quantity of cloth per 1 unit of food) in Australia once trade is established between the two countries. Which country will export cloth? What occurs to the relative income of workers in Australia as a result of trade? Does it decrease or increase? Could land owners in Australia lobby for or against free trade?
Answer: The proportion of food to cloth will enhance in the production of Australia Sri Lanka will export cloth. The real and relative incomes of workers will fall in Australia as a result of trade. Land Owners in Australia must lobby in favour of trade.
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