Question

Part Il: Short Answer In order to receive full credit: (1) Graphs are mandatory whenever appropriate; Be sure to label: i. the axes; ii. the curves; ii the direction the curves shift; iv. the point or example you give; (2) Support your answers with clear explanations. You need to show your work to receive full credit. Suppose country A, a labor-abundant country, produces only wheat and cloth. The following equations illustrate the prices and costs of wheat and cloth in the country, where the numbers indicate the 1. so amounts of labor and land needed to produce a unit of wheat and cloth. 'w is the wage rate and '' is Price of wheat 1w 2r Price of cloth-2w+1r Suppose country A engages in free trade and the price of cloth increases from $3 per unit to $4 per unit. The price of wheat remains unchanged at $3 per unit. Relate this question to the Stolper-Samuelson theorem