Answer the given question with a proper explanation and step-by-step solution. Consider the rest of the world with free trade (production at S1 and consumption at C1 ), as shown in the graph on the right in figure 4.4A of your textbook. The international relative price of cloth now changes to 1.3 W/C. a. Using a graph, show the effects of this change in the international relative price on production and consumption in the rest of the world. b. Is this change in the international relative price an improvement or deterioration in the terms of trade of the rest of the world? According to your graph, does the rest of the world gain or lose well-being? Explain
Answer the given question with a proper explanation and step-by-step solution.
Consider the rest of the world with free trade (production at S1 and consumption at C1 ), as shown in the graph on the right in figure 4.4A of your textbook. The international relative
a. Using a graph, show the effects of this change in the international relative price on production and consumption in the rest of the world.
b. Is this change in the international relative price an improvement or deterioration in the terms of trade of the rest of the world? According to your graph, does the rest of the world gain or lose well-being? Explain
Figure 4.4A
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