Answered: The country Autarka does not allow…

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: Application: International Trade

Section: Chapter Questions

Problem 1CQQ

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Question

The country Autarka does not allow international trade.
In Autarka, you can buy a wool suit for 3 ounces of
gold. Meanwhile, in neighboring countries, you can buy
the same suit for 2 ounces of gold. This suggests that
a. Autarka has a comparative advantage in
producing suits and would become a suit
exporter if it opened up trade.
b. Autarka has a comparative advantage in
producing suits and would become a suit
importer if it opened up trade.
c. Autarka does not have a comparative advantage
in producing suits and would become a suit
exporter if it opened up trade.
d. Autarka does not have a comparative advantage
in producing suits and would become a suit
importer if it opened up trade

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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