Assignment task: Zambia and Zimbabwe are neighbouring countries with a long history of trade with each other. Suppose Electricity and Food are the only two goods produced and consumed in both countries. The food market is characterised by perfect competition whilst the market of electricity is dominated by two firms namely Zesco (Zambia) and Zesa (Zimbabwe). Assume that Zimbabwe and Zambia agree to a free trade agreement.
A. Using a diagram, explain what will happen to the production and consumption in Zambia or Zimbabwe as the country move from autarky to free trade.
B. Did the free trade agreement lead to improvements in welfare of the people in the country, explain.