Relative to a No-International-Trade Initial Situation, If the United States

question 105

Multiple Choice

Relative to a no-international-trade initial situation, if the United States had a comparative advantage in wine production and exported wine, the U.S. domestic price of wine:

• A)​would rise, but domestic output would fall.
• B)​would fall, but domestic output would rise.
• C)​would rise, and domestic output would rise.
• D)​would fall, and domestic output would fall.

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Definitions:

Price Ceiling

A legally established maximum price that can be charged for a product or service, often set by government to prevent prices from reaching too high levels.

Price Floor

A government-set minimum price at which a product can be sold, aimed to prevent the price from falling too low.

Shortage

A market condition where the quantity demanded of a good exceeds the quantity supplied at the current price, leading to upward pressure on price.

Surplus

The situation in which the quantity of goods produced exceeds the quantity of goods demanded. Surpluses can result in price drops for products or services, reflecting a mismatch in supply and demand.