According to the Theory of Trade, If Two Countries Trade

question 106

Multiple Choice

According to the theory of trade, if two countries trade with each other:

• A) consumption in one country will fall and wages in that country will also fall.
• B) wage costs will remain low if both countries specialize in producing the goods for which they have a comparative advantage.
• C) trade raises labor productivity and wages of both countries.
• D) wages in the country with a comparative advantage will rise and wages in the country without a comparative advantage will fall.

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Definitions:

Goodwill

An intangible asset that arises when a company acquires another business for a price higher than the fair value of its net identifiable assets and liabilities.

Cost Method

An accounting method used to value an investment, where the investment is recorded at its original cost without adjusting for market changes.

Consolidated Balance Sheet

A financial statement that combines the assets, liabilities, and equity of a parent company and its subsidiaries into one document.

Deferred Income Taxes

A liability on the balance sheet that results from differences in the timing of recognition of income and expenses for tax and financial reporting purposes.