Suppose the market for oranges in a small country is closed to international trade. The domestic price is $3 per lb, at which 10,000 lbs are bought and sold in the country, while the world price is $4 per lb. If the country opens up to free trade with the world, the domestic quantity demanded at the world price will be 8,000 lbs, and the domestic quantity supplied at the world price will be 12,000 lbs.
A. Which of the following statements is true?
a. The country will become an importer of oranges because it has a comparative advantage in the production of oranges
b. The country will become an exporter of oranges because it has a comparative advantage in the production of oranges
c. The country will become an importer of oranges because the world has a comparative advantage in the production of oranges
d. The country will become an exporter of oranges because the world has a comparative advantage in the production of oranges
B. At what price (per lb.) will oranges be bought and sold in the country after opening up to trade?
a. $3
b. $4
c. $3.5
C. After opening up to trade, the level of exports/imports for the country will be:
a. 8,000 lbs.
b. 12,000 lbs.
c. 10,000 lbs.
d. 4,000 lbs.
D. How much (in $) is the net gain from trade for this country in opening up to free trade?
Suppose the market for oranges in a small country is closed to international trade. The domestic price is $3 per lb, at which 10,000 lbs are bought and sold in the country, while the world price is $4 per lb. If the country opens up to free trade with the world, the domestic quantity demanded at the world price will be 8,000 lbs, and the domestic quantity supplied at the world price will be 12,000 lbs.
A. Which of the following statements is true?
a. The country will become an importer of oranges because it has a comparative advantage in the production of oranges
b. The country will become an exporter of oranges because it has a comparative advantage in the production of oranges
c. The country will become an importer of oranges because the world has a comparative advantage in the production of oranges
d. The country will become an exporter of oranges because the world has a comparative advantage in the production of oranges
B. At what price (per lb.) will oranges be bought and sold in the country after opening up to trade?
a. $3
b. $4
c. $3.5
C. After opening up to trade, the level of exports/imports for the country will be:
a. 8,000 lbs.
b. 12,000 lbs.
c. 10,000 lbs.
d. 4,000 lbs.
D. How much (in $) is the net gain from trade for this country in opening up to free trade?
Related textbook solutions
Related questions
1. If the government institutes an effective price ceiling on potato chips, then there will be a
| decrease in demand for and an increase in supply of potato chips. | |
| decrease in supply of potato chips. | |
| decrease in quantity supplied of potato chips. | |
| decrease in demand for potato chips. | |
| decrease in quantity demanded for potato chips. |
2. Lindsay can either wash two dogs or clean four windows in two hours. Amy can either wash two dogs or clean ten windows in two hours. Based on this information, which of the following is true?
| The opportunity cost of washing 2 dogs for Lindsay is cleaning 2 windows. | |
| The opportunity cost of washing 1 dog for Amy is cleaning 5 windows. | |
| The opportunity cost of washing 1 dog for Amy is cleaning 1/5 of a window. | |
| Lindsay has the absolute advantage in cleaning windows because she has the lowest opportunity cost. | |
| Amy has the absolute advantage in cleaning windows because she has the lowest opportunity cost |
3.
| Oranges | Bananas | |
|---|---|---|
| United States | 4 acres | 5 acres |
| Costa Rica | 3 acres | 2 acres |
The table above lists the number of acres it takes to produce one cargo container of oranges and one cargo container of bananas in the United States and Costa Rica. Assume each nation has 120 acres available to produce both products. If terms of trade were one cargo container of oranges for one cargo container of bananas and both nations agreed to trade according to comparative advantage, how many cargo containers of bananas would be grown?
| 24 cargo containers | |
| 30 cargo containers | |
| 40 cargo containers | |
| 60 cargo containers | |
| 120 cargo containers |
4. The balance of payments includes all of the following except
| transfer payments for welfare. | |
| goods and services sold overseas. | |
| foreign purchases of domestic assets. | |
| imported goods and services. | |
| capital goods purchased by foreigners. |
