Earlier in our study we learned that when a country is
Opened to free trade:
A)relative prices of the traded products do not change.
B)absolute prices measured in the domestic currency do not change.
C)the relative price rises in the export sector and falls in the import sector.
D)the export sector experiences a decline in demand.

Question

Quizplus · Accepted Answer

When a country is opened to free trade, the relative price (in terms of domestic currency) of goods in the export sector rises and the relative price of goods in the import sector falls. This is because increased competition in the import sector leads to lower prices, while increased demand for exports leads to higher prices. Therefore, choice C is the correct answer.

Earlier in Our Study We Learned That When a Country