When the real exchange rate for the dollar appreciates, U.S. goods become
a. less expensive relative to foreign goods, which makes exports rise and imports fall.
b. less expensive relative to foreign goods, which makes exports fall and imports rise.
c. more expensive relative to foreign goods, which makes exports rise and imports fall.
d. more expensive relative to foreign goods, which makes exports fall and imports rise.
d
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Suppose that Spain has a comparative advantage in hats and Portugal has a comparative advantage in doormats. Under a system of free trade, each country specializes and then trades with the other. If the price starts at four hats per doormat, and then increases to five hats per doormat, then:
a. people in Portugal will not want to buy as many hats. b. Spain no longer has a comparative advantage in hats. c. Portugal is flooding the market with too many doormats. d. some of the gains from trade shift to Portugal. e. some of the gains from trade shift to Spain.
If products C and D are close substitutes, an increase in the price of C will:
A. tend to cause the price of D to fall. B. shift the demand curve of C to the left and the demand curve of D to the right. C. shift the demand curve of D to the right. D. shift the demand curves of both products to the right.