________ gains from trade refer to the situation where, over ...

[Caiter2013]

________ 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]

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.