Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 9 - Part III - Application: International Trade - Questions for Review - Page 189: 1

Answer

The effects of free trade can be determined by comparing the domestic price without international trade to the world price. A low domestic price means the country has a comparative advantage, and a high domestic price means it does not.

Work Step by Step

A low domestic price indicates that the country has a comparative advantage in producing the good and that the country will become an exporter. A high domestic price indicates that the rest of the world has a comparative advantage in producing the good and that the country will become an importer.
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