Assume That a Large Capital-Abundant Country Trades Only Two Goods

question 19

Multiple Choice

Assume that a large capital-abundant country trades only two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. An increase in the country's endowment of capital will cause the price of medical equipment relative to the price of corn to:

• A)rise.
• B)fall.
• C)stay the same.
• D)rise at first and then fall.

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Definitions:

Vertical Analysis

A financial method that expresses each item within a financial statement in percentage terms of a base figure for the same time period, facilitating comparison.

Base Amount

A reference value or starting point used in financial calculations or comparisons.

Vertical Analysis

A financial analysis method that lists each line item as a percentage of a base figure within the same financial statement.

Base Amount

The initial sum of money used as a reference point or starting figure for calculations, adjustments, or comparisons.