The Division of the Gains of Trade Between Two Trading

question 13

Multiple Choice

The division of the gains of trade between two trading countries depends on the

• A)long- run costs.
• B)size of the absolute advantages possessed by each country.
• C)quantity of resources held by each country.
• D)level of unemployment in both countries.
• E)difference between the terms of trade and the autarkic relative prices.

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Definitions:

Economic Profits

The surplus generated when total revenues exceed the total costs (including both explicit and implicit costs) of production, reflecting a return beyond the normal profit level.

Total Costs

The combined total of expenses related to the generation of goods or services, integrating both unchanging and adjustable costs.

Market Economy

An economic system in which supply and demand from consumers direct the production of goods and services.

Market System

An economic system based on supply and demand where prices are determined in a free price system.