Consider a Ricardian framework with two countries, A and B, and two products, G1 and G2. When country A opened up to trade, it experienced an increase in nominal wage. We can infer with certainty that Group of answer choicesCountry A has comparative advantage in G2Country A has comparative advantage in G1The world trade relative price is different from country A's autarky relative priceReal wage remained the same in country B
Question
Consider a Ricardian framework with two countries, A and B, and two products, G1 and G2. When country A opened up to trade, it experienced an increase in nominal wage. We can infer with certainty that Group of answer choicesCountry A has comparative advantage in G2Country A has comparative advantage in G1The world trade relative price is different from country A's autarky relative priceReal wage remained the same in country B
Solution
In a Ricardian framework, countries specialize in producing and exporting goods in which they have a comparative advantage, i.e., they can produce at a lower opportunity cost than other countries.
When a country opens up to trade and experiences an increase in nominal wages, it suggests that the demand for the labor used in the production of the good it has a comparative advantage in has increased. This is because the country is now not only producing for its domestic market but also for the international market.
However, from the information given, we cannot determine whether country A has a comparative advantage in G1 or G2. The increase in nominal wage does not specify in which industry the wages have increased.
The statement "The world trade relative price is different from country A's autarky relative price" is likely to be true. In autarky (no trade), a country's relative price is determined by its domestic supply and demand. When it opens up to trade, the relative price will adjust to the world price, which reflects global supply and demand. If the world price is different from the autarky price, the country will gain from trade.
As for the real wage in country B, we cannot infer anything with certainty from the information given. Changes in country A could potentially affect country B, especially if they trade with each other, but the exact impact would depend on various factors not specified here.
So, based on the information given, the most certain inference we can make is that "The world trade relative price is different from country A's autarky relative price".
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