In a two country and two product Ricardian model,a small country is likely to benefit more than the large country because
A) the large country will wield greater political power, and hence will not yield to market signals.
B) the small country is less likely to trade at price equal or close to its autarkic (domestic) relative prices.
C) the small country is more likely to fully specialize.
D) the small country is less likely to fully specialize.
E) the small country can raise wages.

Question

Quizplus · Accepted Answer

In a two country and two product Ricardian model, the small country is likely to benefit more because it is less likely to trade at price equal or close to its autarkic (domestic) relative prices. This means that it can sell its products at higher prices in international markets and earn higher profits. On the other hand, the large country is more likely to trade at price equal or close to its autarkic relative prices due to its larger economy and bargaining power. Thus, the small country gains more from trade in this scenario.

In a Two Country and Two Product Ricardian Model,a Small