If Two Countries with Diminishing Returns and Different Marginal Rates

question 6

Multiple Choice

If two countries with diminishing returns and different marginal rates of substitution between two products were to engage in trade,then

• A) the marginal rates of substitution of both would become equal.
• B) the shapes of their respective production possibility frontiers would change.
• C) the larger of the two countries would dominate their trade.
• D) the country with relatively elastic supplies would export more.
• E) the opportunity costs for the smaller country would increase.

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Definitions:

Interest Allowances

Financial incentives or reductions in interest payments designed to encourage borrowing or to alleviate the burden of interest costs.

Salary Allowances

Fixed amounts paid to employees in addition to their regular salary to cover specific needs or expenses, such as travel or living expenses.

Withdrawal

The act of removing funds from a bank account or the process of taking assets out of a business by its owner for personal use.

Partnership Assets

Assets owned by a partnership that are used for carrying out its business activities.