Consider two identical countries, each with a single firm. With free trade, these single producers become duopolists.
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Question:
Consider two identical countries, each with a single firm. With free trade, these single producers become duopolists. Which of the following statements is false? (a) The gap between market and shadow prices is lower after trade. (b) The gap between market and shadow prices is higher when demand elasticity is low. (c) The gap between market and shadow prices is higher when demand elasticity is high. (d) The gap between market and shadow prices is lower after trade because each firm's share is lower. (e) None of the above
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