2: FREE TRADE: now suppose we open to free trade. (Note: this is the Big country case) (4 points) a) Depict the Excess DEMAND and SUPPLY curves. Then illustrate the free-trade equilibrium output, consumption, and imports/exports for HOME and for FOREIGN. Use the 3- pane figure. (4 points) b) Identify the new Consumer, Producer and Private Surpluses in Home and Foreign. Do they rise fall? Explain what is happening and why. (2 point) c) Show and explain why both countries can Gain from Free Trade. Give the intuition. 3: FREE TRADE: Suppose FOREIGN's production demand curve rises (eg shifts right/up)

Fig: 1