Author Question: According to the classical theory of international trade A) only countries with low wages will ... (Read 78 times)

jayhills49 · **on:** Jun 30, 2018

According to the classical theory of international trade

A) only countries with low wages will export.
B) only countries with high wages will import.
C) countries with high wages will have higher relative prices of all goods.
D) All the above are false.

Question 2

If a nation is more productive than a trading partner, can it still gain from trade with that partner? Use the concepts of absolute and comparative advantage to explain.

What will be an ideal response?

annierak · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

The gains from trade do not rely on overall productivity (absolute advantage) but on differences in relative prices (comparative advantage). In producing a good or service, as long as a trading partner gives up fewer units of an alternate product, we can gain from trade with them.