Question

As a nation opens trade, the relative prices of products it exports will ___________ and the relative prices of products it imports will ____________.

A) rise; fall

B) fall; rise

C) remain constant; fall

D) rise; remain constant

Suppose that the Home country in the two-sector (manifacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. Will workers be better or worse off following the opening of trade with other countries?

A) Workers will be better off because the nominal wage increases.

B) Workers will be worse off because the nominal wage decreases.

C) Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.

D) Workers may be better off or worse off because the real wage in terms of agricultural goods falls and real wage in terms of the manufactured good rises.

An implication of the Ricardian model is that trade should (in general) cause trading nations to completely specialize. But in the real world, we see incomplete specialization far more frequently. Why might this be the case?

A) decreasing opportunity costs of production

B) constant opportunity costs of production C

) increasing opportunity costs of production

D) perfectly substitutable resources

Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. Will workers be better or worse off following the opening of trade with other countries?

A) Workers will be better off because the nominal wage increases

B) Workers will be worse off because the nominal wage decreases

C) Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls

D) Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises

Answer 1

1. A.) Rise and fall

As a nation opens trade, the relative prices of products it exports will rise and the relative prices of products it imports will fall because where the nation export more surplus products to increase trade with other nation to.produce revenue and decrease imports as demand differs as it will be able to sell (export) the product for which its own relative price is lower than other nations.

2. D.)
Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.When trade occurs, the nominal and real prices of the agricultural good will rise.

3. A) decreasing opportunity costs of production

Ricardo argued that a country shouldn't specialize in those goods it can produce at a higher total level, but in those goods it can produce with a lower opportunity cost.

4. D)

Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.when trade occurs the nominal and real prices of the agricultural good will rise