Consider a small country in a world that produces two goods, food and cloth. The relative price of food is lower in the country in autarky than it is in the global market. If the country removes its trade barriers what effect will this have on:

Consider a small country in a world that produces two goods, food and cloth. The relative price of food is lower in the country in autarky than it is in the global market. If the country removes its trade barriers what effect will this have on: (i) The return to labour and the return to capital in the food and cloth sectors when all resources are specific to each sector? [5] (ii) The return to labour and the return to capital in each sector when labour is mobile between sectors but capital is specific to each sector [30] (iii) The output of food and cloth when labour is mobile between sectors but capital is not. [5] (iv) If all resources are inter-­‐sectorally mobile, the income distribution effects of trade will be different to the case when resources are specific to a sector. Briefly explain why this is the case [10] (Use diagrams (and algebra if you wish) to support your answers)