1. when an economy is open to trade, the relative proce of a good is determined

Question

1. when an economy is open to trade, the relative proce of a good is determined by the

a.. supply and demand for the world

b. relative supply and demand for that economy

c. relative supply and demand for the world

d. suppy and demand for that economy

e. non of the above

2. Assune a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x-axis and food is on the y-axis.

When the price of cloth increases by 10% and the price of food increases by 10%

a. the output of food falls

b. labor shift from the food sector to the cloth sector

c. the output of cloth rises

d. the real wage rates are unaffected

Explanation / Answer

1)

c. relative supply and demand for the world

When we have an open market. Sellers from all over the world influence the prices. Since prices are decided by sellers , who change prices based on supply and demand, Indirectly prices depend on relative supply and demand for the world

2)

d. the real wage rates are unaffected

both have same rate of change of prices.

for better understanding of openmarkets, go through this

http://www.fte.org/teacher-resources/lesson-plans/efllessons/lesson-3-open-markets/

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