Please answer the question (e) and (f).

Question 1: FREE TRADE - Two Country Model ..........20 points Se HOME WORLD ES/ED Pe FOREIGN PAI Se LLLL LLL D traded (4 points) (a) Show and explain how derive the free trade world price. Then show how output and consumption in each country changes as we move to free trade. WORLD PRICE: Now suppose the SUPPLY curve in FOREIGN rises (eg moves down/ to the right) (2 points) (c) Show how, and explain why, the free trade world price changes because of the rise in FOREIGN supply (2 points) (d) What do we mean by the Terms of Trade (TED) and why does an improvement (rise) in the ToT imply a rise in social surplus? (4 points) e) Show how social surplus in HOME changes with this foreign supply shock'. Explain the details fully. Relate to changes in the Terms of Trade. (4 points) f) Show how social surplus in FOREIGN changes with this foreign supply shock'. Explain the details fully. Relate to changes in the Terms of Trade. Question 1: FREE TRADE - Two Country Model ..........20 points Se HOME WORLD ES/ED Pe FOREIGN PAI Se LLLL LLL D traded (4 points) (a) Show and explain how derive the free trade world price. Then show how output and consumption in each country changes as we move to free trade. WORLD PRICE: Now suppose the SUPPLY curve in FOREIGN rises (eg moves down/ to the right) (2 points) (c) Show how, and explain why, the free trade world price changes because of the rise in FOREIGN supply (2 points) (d) What do we mean by the Terms of Trade (TED) and why does an improvement (rise) in the ToT imply a rise in social surplus? (4 points) e) Show how social surplus in HOME changes with this foreign supply shock'. Explain the details fully. Relate to changes in the Terms of Trade. (4 points) f) Show how social surplus in FOREIGN changes with this foreign supply shock'. Explain the details fully. Relate to changes in the Terms of Trade