Suppose there are two countries (Home and Foreign) that produce two
Goods.Home's wages are 100% greater than Foreign's wages.Will trade
Be possible between Home and Foreign?
A)No, because Foreign's wages are lower than Home's wages.
B)Yes, Foreign will be able to export both products to Home.
C)Yes, as long as Home's marginal productivity of labor in one product is at least 100% higher than Foreign's marginal productivity of labor in
The same product.
D)No, because prices will be the same in each country.

Question

Quizplus · Accepted Answer

Trade will be possible as long as the marginal productivity of labor in one product in Home is at least 100% higher than Foreign's marginal productivity of labor in the same product. This means that Home can specialize in producing the goods in which they have a comparative advantage and trade with Foreign for the other good. The fact that Home's wages are higher than Foreign's wages does not necessarily prevent trade. Prices will not necessarily be the same in each country as they will be subject to supply and demand in the respective markets.

Suppose There Are Two Countries (Home and Foreign) That Produce