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Assume a two-country, two-good, two-input model. Let the countries in the model be the United States...

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Economics

Assume a two-country, two-good, two-input model. Let thecountries in the model be the United States and the Rest of theWorld and the goods be steel and wheat. The two factors ofproduction are capital and land. Further, the United States iscapital-abundant and steel production is capital-intensive.Suppose, in the absence of trade, the United States operates at apoint on its production possibility curve where it produces andconsumes 20 units of wheat and 20 units of steel. Once it engagesin free trade, the international price of one unit of steel is twounits of wheat. In response to the opening of trade, the UnitedStates moves along its production-possibility curve to a new pointwhere it produces 30 units of steel and 10 units of wheat. Is theUnited States better off following the opening of trade? Illustratewith a diagram and provide a clear explanation for your answer

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