A Country Will Gain Relatively More from Trade When

question 7

Multiple Choice

A country will gain relatively more from trade when

• A)trade is regulated.
• B)the world price is close to the country's opportunity cost of the good.
• C)the world price is below the country's opportunity cost of the good.
• D)the world price is much greater than the country's opportunity cost for the good.

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Definitions:

Income Effect

The impact of income changes on the demand for goods or services by an individual or within the economy.

Substitution Effect

Describes how consumers react to a change in the price of a good by substituting it with another good that is relatively cheaper.

Income Effect

The income effect refers to the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to substitute one good for another more or less expensive.