Again, consider the numerical example that we used to demonstrate the thinking of Adam Smith

QUESTION:

Again, consider the numerical example that we used to demonstrate the thinking of Adam Smith (page 36). When these countries open to free trade, is it possible that the free-trade equilibrium world relative price of cloth is 1.5 W/C?

ANSWER:

Using the information on the number of labor hours to make a unit of each product in each country, you can determine the relative price of cloth in each country with no trade. With no trade, the relative price of cloth is 2 W/C (= 4/2) in the United States, and it is 0.4 W/C (= 1/2.5) in the rest of the world. With free trade, the equilibrium world price of cloth must be in the range bounded by these two no-trade prices. So, yes, it is possible that the free-trade equilibrium relative price of cloth is 1.5 W/C (1.5 is greater than 0.4, and less than 2).

 

That is so great to hear. We really try our best to provide you the quality content. And thank you so much for taking the time to provide your feedback. Complaints


 
0 / 5

Your page rank:

Related Articles

Responses

Your email address will not be published. Required fields are marked *