The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of food. When the central city, Mudhole, puts in an airstrip, the country is able to engage in trade. If the relative price of cloth in the outside world is 8 units of food, then Moribundia will export ________ and ________ factors used in the production of ________ will benefit.
A) cloth; immobile; food
B) food; mobile; food
C) food; immobile; food
D) cloth; immobile; cloth
E) cloth; mobile; cloth

Question

Quizplus · Accepted Answer

Moribundia will export cloth because the outside world has a higher relative price for it. The factors used in the production of cloth (such as labor and capital) are immobile because the question states that Moribundia is a small isolated country, meaning that it likely does not have a lot of resources that can be easily moved around. Finally, the factors will benefit the production of cloth since exports are likely to increase demand for the production factors used in the production of cloth.

The Relative Price of a Unit of Cloth in the Small