As a country moves from autarky to trade, the relative price of the country's import good will __________ for home consumers, and the relative price of the country's export good __________ for home consumers.
A) fall; will rise
B) fall; also will fall
C) rise; also will rise
D) rise; will fall

Question

Quizplus · Accepted Answer

As a country moves from autarky to trade, it will start importing goods from other countries, increasing the supply of the import good in the home market. This increase in supply will lead to a fall in the relative price of the import good for home consumers. At the same time, the country will be exporting its own goods to foreign markets, which will increase the demand for those goods and push up their relative price for home consumers. Therefore, the relative price of the import good will fall, and the relative price of the export good will rise.

As a Country Moves from Autarky to Trade, the Relative