If a home country is exporting corn and importing bikes and if the
Relative price Pc/Pb is increasing, then:
A)the home country will export less corn.
B)the home country will export more corn.
C)the home country will import the same number of bikes.
D)there is no change in the trade pattern for the home country.

Question

Quizplus · Accepted Answer

An increasing relative price of corn to bikes means that corn becomes relatively more expensive and bikes become relatively cheaper. Thus, the demand for corn decreases while the demand for bikes increases. As a result, the home country will export less corn and import more bikes, leading to a shift in its trade pattern.

If a Home Country Is Exporting Corn and Importing Bikes