Author Question: ________ gains from trade refer to the situation where, over time, international trade leads to an ... (Read 114 times)

Caiter2013

  • Hero Member
  • *****
  • Posts: 607
________ gains from trade refer to the situation where, over time, international trade leads to an outward shift in a country's production possibility frontier.
 
  A) Static
  B) Dynamic
  C) Political
  D) Outward

Question 2

Explain why price levels are lower in poorer countries.
 
  What will be an ideal response?



nothere

  • Sr. Member
  • ****
  • Posts: 324
Answer to Question 1

B

Answer to Question 2

One theory explains the difference in prices on different endowments of capital and labor (Bhagwait, Kravis, and Lipsey). The explanation is as follows:
 Rich countries have high capital-labor ratios while poor countries have much more labor relative to capital.
 Because rich countries have high capital labor ratios, the MPL is greater and thus they have a higher wage.
 Higher wages lead to higher disposable income, and citizens' demand for goods will increase.
 Because labor is cheaper in poor countries and is used intensively in producing non-tradable goods; non-tradable goods will be cheaper in the poor countries than in the rich.
 The price of non-tradable goods will move with the increase in wage, thus increasing the price level of the good.
Rich Countries: Expensive Non-tradable goods vs. Poor Countries: Cheap Non-tradable goods.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

It is difficult to obtain enough calcium without consuming milk or other dairy foods.

Did you know?

Hip fractures are the most serious consequences of osteoporosis. The incidence of hip fractures increases with each decade among patients in their 60s to patients in their 90s for both women and men of all populations. Men and women older than 80 years of age show the highest incidence of hip fractures.

Did you know?

Thyroid conditions cause a higher risk of fibromyalgia and chronic fatigue syndrome.

Did you know?

There are 20 feet of blood vessels in each square inch of human skin.

Did you know?

There are more bacteria in your mouth than there are people in the world.

For a complete list of videos, visit our video library