As the home nation increases production of R&D by devoting more skilled resources, its productivity rises and its relative price rises. This situation creates:
A) lower gains from offshoring.
B) greater gains from offshoring.
C) no measurable gains from offshoring.
D) equal gains from offshoring.

Question

Quizplus · Accepted Answer

When a home nation increases its productivity, especially in sectors like R&D by allocating more skilled resources, it typically leads to an increase in the relative price of its products due to higher value addition. This scenario makes offshoring more attractive for tasks that are less critical or can be produced at a lower cost elsewhere, thereby increasing the gains from offshoring. Offshoring allows the home nation to focus its skilled resources on high-value tasks while benefiting from lower costs in producing other goods or services abroad.

As the Home Nation Increases Production of R&D by Devoting