Question

If country A's (Px/Pv) in autarky is greater than the (Px/Py) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will , and A's producers will hence want to shift their production toward producing 25. a. decrease; more of good X and less of good Y b. decrease; more of good Y and less of good X c. increase; more of good X and less of good Y d. increase; more of good Y and less of good X 26 As a country moves from autarky to trade, the relative price of the country's export good will for home consumers, and the relative price of the country's import good for home consumers a. fall; will rise b. fall also will fall c. rise; also will rise d. rise; wil fall

Answer 1

25) (b) decrease; more of good Y and less of good X.

Since the relative price of good X facing A's producers will decrease, therefore A's producers will want to produce more Y and less X.

26) (d) rise; will fall

For home consumers, the relative price will rise for export good whereas it will fall for import good.