. Arbitrage activities will drive up the relative price of good A in Foreign. B. Arbitrage activities will drive up the relative price of good A in Home. C. Arbitrage activities will result into a trade equilibrium where both economies face a common terms of trade. D. The terms of trade, or relative

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider two economies, Home and Foreign, producing goods A and B only. In Home, the relative autarky price of good A (in units of good B) is 2. In Foreign, the relative autarky price of good A (in units of good B) is 6. Consider now the incentives for and effects of trade. select all that apply

A. Arbitrage activities will drive up the relative price of good A in Foreign.

B. Arbitrage activities will drive up the relative price of good A in Home.

C. Arbitrage activities will result into a trade equilibrium where both economies face a common terms of trade.

D. The terms of trade, or relative price of good A (in units of good B) will lie between 2 and 6.

 

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