Suppose That Spain Has a Comparative Advantage in Hats and Portugal

question 104

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) Portugal is flooding the market with too many doormats.
• D) some of the gains from trade shift to Portugal.
• E) some of the gains from trade shift to Spain.

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