ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Consider two economies, Home and Foreign, producing goods A and B only. In Home, the relative autarky
A. Arbitrage activities will drive up the relative price of good A in Foreign.
B. Arbitrage activities will drive up the relative price of good A in Home.
C. Arbitrage activities will result into a trade equilibrium where both economies face a common terms of trade.
D. The terms of trade, or relative price of good A (in units of good B) will lie between 2 and 6.
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