The advantage to the nation.
Answer to Problem 1CQQ
Option 'a' is correct.
Explanation of Solution
The international trade is the exchange of goods and services between different nations in the world. The exchange will take place and the main two processes are the export and imports. The exports is the sale of domestic goods to the foreigners and imports is the vice versa.
Option (a):
When the domestic price of the commodity is lower than the price in the foreign countries, it denotes that the domestic country is able to produce the good at lower
Option (b):
When the domestic price of the commodity is lower than the price in the foreign countries, it denotes that the domestic country is able to produce the good at lower opportunity cost than the foreign countries. This ability of the country is known as the comparative advantages and when the trade opens up between the countries, due to the lower opportunity cost, the supply of steel will increase and the country will become a steel exporter and not an importer which makes option 'b' incorrect.
Option (c):
When the domestic price of the commodity is lower than the price in the foreign countries, it denotes that the domestic country is able to produce the good at lower opportunity cost than the foreign countries. This ability of the country is known as the comparative advantages and thus, the option 'c' which explains that the nation does not have any comparative advantage which is incorrect. So, option 'c' is incorrect.
Option (d):
The country has the comparative advantages of production because the country produces steel and the domestic price of steel is lower than the foreign countries. Thus, the country has the comparative advantages in the production of steel and thus when the trade opens: it becomes the exporter and not importer. Thus, option 'd' is incorrect.
Concept introduction:
International trade: It is the trade relation between the countries.
Export: It is the process of selling the domestic goods in the international market. Thus, the goods produced in the domestic firms will be sold to other foreign countries. So, it is the outflow of domestic goods and services to the foreign economy.
Import: It is the process of purchasing the foreign made goods and services by the domestic country. Thus, it is the inflow of foreign goods and services to the domestic economy.
Comparative advantage: It is the ability of the country to produce the goods and services at lower opportunity costs than the other countries.
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EBK STUDY GUIDE FOR MANKIW'S PRINCIPLES
- You just overheard your friend say the following: Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade. How would you respond?arrow_forwardIf higher tariffs, such as those enacted by the Smoot-Hawley trade bill, reduce the imports of the United States, which of the following will be most likely to occur? a. U.S. employment will increase. b. The unemployment rate of the United States will decline. c. U.S. exports will increase because foreigners will want to buy more from U.S. producers. d. U.S. exports will decline because foreigners will be earning fewer of the dollars needed to purchase goods and services from Americans.arrow_forwardThe two primary reasons to adopt measures to restrict trade are that a. they help keep real wages high in the importing country, and they also permit small businesses to compete in international markets. b. they may help the importing country improve its educational system, and they keep high-technology products from being stolen by foreign competitors. c. they may help the importing country get better prices for its goods, and they protect certain industries from foreign competition. d. they may help advance the political goals of the nation, and they encourage productivity in domestic industries.arrow_forward
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