Suppose Country a Had Been Traditionally Enjoying a Comparative Advantage

question 49

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, if it happens, will indicate that the new firms in country B will not be able to operate profitably?

• A)The firms in country A will expand production beyond the optimum point and will experience an increase in per unit cost with a further increase in output.
• B)The demand for good X will increase substantially in country A in recent future.
• C)The firms in country A will lower the prices for their products.
• D)The input prices in country A are likely to increase significantly in the near future.

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Definitions:

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