If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, then, as the Country moves from autarky to trade, the relative price of good Y will __________ for Home consumers. Thus, consumers with a strong relative preference for good __________ would tend to oppose the movement to trade. A) increase; Y B) increase; X C) decrease; Y D) decrease; X

Question

Quizplus · Accepted Answer

If a country's domestic price ratio of good X to good Y (P_X/P_Y) in autarky is less than the world market price ratio, it means that, relative to the world market, good X is cheaper domestically than good Y. When the country opens to trade, it will import good Y (which it relatively overprices) and export good X (which it relatively underprices), leading to an increase in the domestic price of good X relative to good Y. Therefore, the relative price of good Y will decrease for home consumers, making consumers with a strong relative preference for good X (since it becomes relatively more expensive) likely to oppose the move to trade.

If a Country's PX/PY in Autarky Is Less Than the PX/PY

If a Country's P_X/P_Y in Autarky Is Less Than the P_X/P_Y