Suppose That Spain Has a Comparative Advantage in Hats and Portugal

question 31

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 specialises 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.

---

Definitions:

Climate Change

The increase in extreme weather patterns linked to global warming.

Hurricanes

Powerful tropical storms with strong winds and heavy rain, known for their potential to cause significant damage.

Tornadoes

Violently rotating columns of air that are in contact with both the surface of the Earth and a cumulonimbus cloud or, in rare cases, the base of a cumulus cloud.

Cyclones

Large scale air mass that rotates around a strong center of low atmospheric pressure, associated with storms and bad weather.