The Ricardian two-country two-good model predicts that there are potential benefits from trade, but NOT
A) the effect of trade on income distribution.
B) the mechanism that determines which country will specialize in which good.
C) when one country has an absolute advantage in the production of both goods.
D) when one country has significantly lower wages than the other country.
E) when both countries have the same types of technology available.
A
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A negative externality occurs when
A) there is rent-seeking. B) benefits are imposed on individuals that are not part of a transactions. C) there is creative destruction. D) costs are imposed on individuals that are not part of a transaction.
Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor Toysorama is mass producing an excellent copy and plans to flood the market with their $5 doll in 6 weeks. Funsters should
a. “fight fire with fire” by decreasing supply of its doll for 6 weeks and then increasing the supply.
b. increase the supply of their doll now before the other doll hits the market.
c. increase the price of their doll now.
d. discontinue their doll.