Question

If a country's P X/ P Y in autarky is less than the P X /P Y on the world market, then this country has a comparative advantage in the ________ good, and, if the country now engages in international trade and moves along its production-possibilities frontier, its production of the X good will ________.

Answer 1

Answer:

• production of X good
• increase

Explanation:

Production of good X over production of good Y (PX / PY) represents the opportunity cost of producing good X instead of good Y. The lower the ratio, the lower the opportunity cost. A lower opportunity cost results in a comparative advantage in the production of good X.

If the country starts to trade it will need to produce more of good X in order to exchange for other goods.