Answer to Question #292472 in Economics of Enterprise for soudeh

Question

The country Autarka does not allow international trade. In Autarka, you

can buy a wool suit for 3 ounces of gold. Meanwhile, in neighboring countries,

you can buy the same suit for 2 ounces of gold. If Autarka were to allow free trade,

would it import or export wool suits? Why?

Answer 1

On allowing for free trade, Autarka will import wool suits. Wool suit production in other countries is much cheaper compared to the production in the domestic country Autarka. Importing wool suits will therefore do Autarka more good as it can focus its resources to the production of other goods which they got a comparative advantage over.