Question

If trade opens up between the two countries, Australia and Belgium that were not open to trade before, then Select one: a. the real income of both countries may increase.

b. the real income of Australia but not of Belgium will increase.

c. the real income of both countries will increase.

d. the real income of Australia and of Belgium will increase. e. the real income of neither country will increase.

Answer 1

Option A - the real income of both countries may increase.

Explanation : Trade broadly refers to exchanging goods and services , most often in return for money. Trade increases competition and lowers world prices, which provides benefits to consumers bybraising the purchasing power of their own income , and leads a rise in consumer surplus. Trade also breaks down domestic monopolies, which face competition from more efficient foreign firms. Trade enables countries to experience economic growth and a rising Standard of living by increasing access to physical capital and export markets. When a country opens up to trade, the demand and supply of goods and services in the economy shift. As a consequence, local markets respond, and prices change. This has an impact on households , both as consumers and as wage earners. The implication is that trade has an impact on everyone.

As a result of international trade, the market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the consumer. International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity of foreign direct investment. For the investor, FDI offers company expansion and growth, which means higher revenues.