Edgeworth Box for Two Countries
A). Construct an Edgeworth box for the two countries.
b). Identify the contract curve.
c). Solve for the free-trade equilibrium relative price.
d). How are the gains from trade allocated across the two countries?
e). What explains the peculiar allocation of the gains from trade across these countries?
f). What is the direction of trade between the two countries. Show that it is balanced.
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