Question

8 If the production condatioas ia the United States and Japan were to become essentially the same, would the neoclassical model suggest that trade between the two countries would cease? Why or why nor?

Answer 1

Ans. Ms. Jones is certainly correct in analyzing her own condition but us incorrect in analyzing the situation of the country. She may be worse off than before due to export of food by the country but the country would be gaining because of the free trade . The real income of Ms Jones decreases because of the income redistribution effect of free trade. Other people , consuming other commodities may be well off.

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