Consider the rest of the world with free trade (production at 5, and consumption at C,), as
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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.
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