Suppose That Spain Has a Comparative Advantage in Hats and Portugal

question 1

Multiple Choice

Suppose that Spain has a comparative advantage in hats and Portugal has a comparative advantage in doormats. Under a system of free trade, each country specializes and then trades with the other. If the price starts at four hats per doormat, and then increases to five hats per doormat, then:

• A) people in Portugal will not want to buy as many hats.
• B) Spain no longer has a comparative advantage in hats.
• C) some of the gains from trade shift to Spain.
• D) some of the gains from trade shift to Portugal.

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Definitions:

Out-group

A social group toward which an individual feels opposition, rivalry, or hostility.

In-group

A social group to which an individual feels a sense of belonging and identity.

Formal Organizations

Complex and structured secondary groups designed to achieve specific goals efficiently, usually guided by rules and regulations and characterized by a hierarchical system of roles.

Macroanalysis

A broad approach in sociology that focuses on large-scale social structures and processes.