Suppose Malaysia and Taiwan have same number of labor and capital and share same production technology. Suppose Malaysia begins to export cloth to and import fish from Taiwan after openining up to trade (These countries constitute the market for cloth and fish).  Use standard trade model to answer the following, on the basis of this infomation? 

i.)  Show the relation between relative prices before opening to trade? Discuss.  

ii.)  Show trade triangles for each country (Use PPF and social indifferences for both countries)?  

iii.)Suppose perfect competitive market conditions hold in fish and cloth markets. Suppose there is increase in demand for cloth resulting in increase in relative price of cloth (relative to fish prices) How it would affect the trade triangle of Malaysia?

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The standard trade model is built on four key relationships 1 the relationship ... View the full answer