A) Explain why RELATIVE prices of two goods, both produced in each of two countr

Question

A) Explain why RELATIVE prices of two goods, both produced in each of two countries, will differ prior to any trade taking place ("autarky"). why profit-seeking will cause each country to specialize - wholly or partially - in producing one of the goods, and why this specialization will increase total world output and income?

B) Explain how "perfect" competition differs from "imperfect" competition, and how firms in so called "oligopolistic" industries might be expected to adjust their prices and outputs in the latter type of structure.

Explain Well, in details not shortened.

Explanation / Answer

A) Two countries are identical in all supply aspects but have different tastes and preferences then the relative product prices will differ in autarky. A similar result occurs if demands in the two countries are identical but supply conditions vary, as reflected in differently shaped production-possibilities frontiers. In this case, the different autarky price ratios could be the result of different technologies in the two countries, different relative factor availabilities, or a combination of the two.It is safe to conclude that differences in either demand or supply conditions are sufficient to provide a basis for trade between two countries.  

For example -

For any given endowment, the stronger is a country

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