If There Are High Transportation Costs

question 39

Multiple Choice

If there are high transportation costs

• A)the terms of trade will also be high
• B)the result could be incomplete specialization
• C)large countries will have an advantage in trading with small countries
• D)small countries will have an advantage in trading with large countries
• E)trade will be based on absolute advantage rather than comparative advantage

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Definitions:

Substitution Effect

The economic principle that as the price of one good increases, consumers will replace it with a cheaper alternative, assuming the utility derived remains unchanged.

Output Effect

The effect that changes in the price level have on the quantity of goods and services supplied, due to the real balances of money.

Marginal Revenue Product

The additional revenue generated by employing one additional unit of a factor of production, crucial for decision-making in business.

Output Rises

An increase in the quantity of goods or services produced within an economy, often indicating economic growth or expansion.