Question

A country may lose (i.e. the utility of the representative consumer may go down) if it is unable to change its production in response to the change in prices resulting from moving from autarky to trade. True, false, or uncertain

Answer 1

Answer:

True

Explanation:

If a country goes from autarky to trade, the country will experience pressure (and also incentives) to change its production to those goods for which it has a comparative advantage, according to the Ricardian theory of trade.

If the country fails to do so, it will continue to focus its production on goods and services for which it does not have a comparative advantage, meaning that it will not realize the gains from trade, resulting in a loss of the utilility of the representative consumer.