If Country A's (P_X/P_Y) in Autarky Is Greater Than the (P_X/P_Y)

question 18

Multiple Choice

If country A's (P_X/P_Y) in autarky is greater than the (P_X/P_Y) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will __________, and A's producers will hence want to shift their production toward producing __________.

• A) decrease; more of good X and less of good Y
• B) decrease; more of good Y and less of good X
• C) increase; more of good X and less of good Y
• D) increase; more of good Y and less of good X

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Definitions:

Residual Value

The estimated value that an asset will have at the end of its useful life, often used in calculating depreciation.

Capital Lease

A type of long-term lease agreement in which the lessee essentially buys an asset and pays for it over the lease term, with the asset's ownership potentially transferring to the lessee at the lease's end.

Bargain Purchase Option

A provision in a leasing contract permitting the lessee to buy the leased item for a price well below the anticipated market value once the lease period concludes.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows, given a specified rate of return, rephrasing the value of future money in today's terms.