Question

Suppose that, a country with a closed economy opens itself to international trade and becomes a net exporter. In that case, the price of that good will ____ when the economy goes from closed to open for trade.

Answer 1

Answer:

Increase

Explanation:

A closed economy is a country with no export or imports or any form of international trade and thus is completely self sufficient. When a country with closed economy decides to engage in international trade and becomes a net exporter, that is, it sells more to foreign countries than they import, the general price level of the good traded increases.

Answer 2

Answer: Increase.

Explanation: A closed economy is one in which there is no external trading, that is no importation or exportation activities with other countries. Territories in this bracket are often seen as self-sufficient and tend to encourage local production. However, when an economy transits from being closed to open to international or foreign trade, and becomes a net exporter, that is sells more than it buys, then the price of that good will increase as more will need to be produced than previous amounts provided locally in other to meet demands of export. This increase in demand will most certainly lead to increment in price.