Suppose the Edgeworth box diagram above pertains to trade between Mexico and the U.S. Before the ratification of the North American Free Trade Agreement (NAFTA), the consumption of computer chips and textiles in both countries is given by point A. How do we know both countries are better off by free trade?5. We know that both countries are made better off by free trade because they each attain an indifference curve that provides  Blank 1. Fill in the blank, read surrounding text. utility.

We know that both countries are made better off by free trade because they each attain an indifference curve that provides  Blank 1. Fill in the blank, read surrounding text. utility.

Economic theory suggests that a switch to free trade would:Question 23Select one:a.Result in both countries’ indifference curves shifting outward, increasing the utility of both countries populations.b.Result in no change in the slopes of both countries’ isorevenue lines and budget lines.c.Result in both countries’ indifference curves shifting inward, reducing the utility of the populations both countries.d.Result in one country invading the other country making the quality of life worse in both countries.e.Have no effect on countries’ indifference curves, budget lines, isorevenue lines, or production possibilities curves.

Analyse the economic welfare implications of the proposed policy, using a graphicalillustration to aid your discussion. (5)Question 3 [12 marks]With the aid of an Edgeworth Box diagram explain when efficiency in exchange is achieved inan economy.

_______ holds that there are advantages to trade because different countries can produce different goods more efficiently than others.

2. Assume Ricardian world. With no trade, if a country consumes two goods, it implies thatA) the price of two goods are the same.B) the relative price of one good is the same as the opportunity costs of that good.C) the relative price of one good is the same as the opportunity costs of the other good.D) A good which is consumed more is cheaper than the other good.