Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. On the other hand, a Canadian worker can produce 10 pairs of shoes or grow 20 apples per day. When trade opens up, the United States should produce:
A. both goods, since they have an absolute advantage in both goods, and not trade.
B. only shoes, since they have a comparative advantage in the production of shoes, and not trade.
C. apples, since they have a comparative advantage in the production of apples, and not trade.
D. only apples, since they have a comparative advantage in the production of apples, and trade for shoes.
D. only apples, since they have a comparative advantage in the production of apples, and trade for shoes.
You might also like to view...
Consider a large open economy that has a positive current account balance. (a) Suppose the domestic government increases the tax rate on firm revenues
Draw a diagram to explain the effects on the world real interest rate, saving in each country, investment in each country, and the current account balance in each country in equilibrium. Explain your work. (b) In addition to the tax increase in part (a), suppose now that the foreign government increases lump-sum taxes on individuals. Draw a new diagram to incorporate the overall effects of both tax changes and explain the effects (from the initial equilibrium with neither tax change) on the world real interest rate, saving in each country, investment in each country, and the current account balance in both countries. Explain your work.
If the federal government tries to make fiscal policy sustainable by increasing taxes on capital income, the after-tax return to capital goods will ________ and will result in ________ potential GDP
A) increase; lower B) decrease; higher C) decrease; lower D) increase; higher