2. If Home has a comparative advantage in the production of good 1, then when the economy in Foreign. opens the relative price of good 1 in Home and a. increases, increases b. increase, decreases c. decreases, increases d. decreases, decreases

2. If Home has a comparative advantage in the production of good 1, then when the economy in Foreign. opens the relative price of good 1 in Home and a. increases, increases b. increase, decreases c. decreases, increases d. decreases, decreases

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

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2. If Home has a comparative advantage in the production of good 1, then when the economy
opens the relative price of good 1
in Home and
in Foreign.
a. increases, increases
b. increase, decreases
c. decreases, increases
d. decreases, decreases
3. Assume Home has a comparative advantage in the production of good 1. When the economy
opens and begins trading with Foreign, which of the following occurs?
a. the relative price of good 1 increases
b. industry 1 expand and industry 2 contracts
c. the real wage in units of good 2 increases
d. all of the above

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