According to the Theory of Trade, If Two Countries Trade

question 40

Multiple Choice

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

• A) consumption in one country will fall and wages 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 the 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:

Small Town

A community with a small population, typically larger than a village but smaller than a city.

Foreign Exchange

The exchange of one currency for another or the conversion of one currency into another currency.

Imperfectly Competitive

A market structure where not all participants have equal ability to influence prices, with variations in products and control.

Marginal Revenue

The additional revenue that will be generated by increasing product sales by one unit.