Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the relative price of manufactured output when trade occurs?
A) It will fall.
B) It will rise.
C) It will not change.
D) It will first rise, then fall.

Question

Quizplus · Accepted Answer

When a country has a comparative advantage in manufacturing output and engages in trade, it will increase its exports of manufactured goods, thus increasing demand for its products and raising the relative price of manufacturing output relative to agriculture output.

Suppose That the Home Country in the Two-Sector (Manufacturing and Agriculture)