Suppose Country A had been traditionally enjoying a comparative advantage in the production of Good X. As a result, most of the large firms manufacturing and exporting Good X were concentrated in Country A. However, recently it has been observed that the comparative advantage in the production of Good X has shifted to Country B owing to better factor availability and lower input prices. Some new firms are contemplating to start operating in Country B. Which of the following conditions probably must be fulfilled to ascertain that these new firms will enjoy a cost advantage over the established firms in Country A?
A. The output level of the new firms in Country B should be large enough to enable them to achieve scale economies.
B. The consumers in Country B should have a relatively elastic demand compared to the consumers in Country A.
C. The number of firms to begin operation in Country B must be greater than the number of firms operating in Country A.
D. The new firms in Country B should have a higher input-output ratio than the firms operating in Country A.
Answer: A
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Using the information in situation 20-2, if government spending increases by $100, then the equilibrium aggregate output will change by
A) -$1,000. B) -$100. C) $100. D) $1,000.
In the short-run macro model, aggregate expenditures are found by which of the following formulas?
a. AE = C + I + G + NX b. AE = Ip + T + S + G c. AE = C + Ip - T + NX d. AE = C + Ip + G + NX e. AE = C + Ip + G - NX
If the opportunity cost of production rises as more of a good is produced,
a. the terms of trade will be independent of opportunity costs b. the production possibilities curve will be a straight line c. a country will specialize in producing only those goods in which it has a comparative advantage d. a country should produce any good in which it has an absolute advantage e. a country may not specialize completely in the goods in which it has comparative advantage
Which of the following would be the best supply-side policy to increase AS?
A. Increase the supply of money. B. Increase capital gains taxes. C. Reduce marginal tax rates. D. Increase the number of safety compliance reports.