Suppose Country a Had Been Traditionally Enjoying a Comparative Advantage

question 28

Multiple Choice

Suppose country A had been traditionally enjoying a comparative advantage in the production of good X. As a result most of the large firms manufacturing and exporting good X were concentrated in country A. However, recently it has been observed that the comparative advantage in the production of good X has shifted to country B owing better factor availability and lower input prices. Some new firms are contemplating to start operating in country B. Which of the following conditions probably must be fulfilled to ascertain that these new firms will enjoy cost advantage over the established firms in country A?

• A)The number of firms to begin operation in country B must be greater than the number of firms operating in country A.
• B)The consumers in country B should have a relatively elastic demand compared to the consumers in country A.
• C)The new firms in country B should have a higher input-output ratio than the firms operating in country A
• D)The output level of the new firms in country B should be large enough to enable them to enjoy scale economies.

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Definitions:

Prior Service Credit

A pension plan feature that grants employees credit for service periods before the commencement of the pension plan, affecting their benefits.

Defined Benefit Pension Plan

A retirement plan where the benefits that an employee will receive upon retirement are defined based on a formula considering factors such as salary history and duration of employment.

Service Cost

The portion of the pension expense that is recognized for the increase in pension benefits related to employee services of the current period.

Unrecognized Prior Service Cost

Costs not immediately recognized on the income statement related to retroactive benefits granted to employees in a pension plan amendment.