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Chapter 20: Q11. (page 431)

Suppose that if Iceland and Japan were both closed economies, the domestic price of fish would be \(100 per ton in Iceland and \)90 per ton in Japan. If the two countries decided to open up to international trade with each other, which of the following could be the equilibrium international price of fish once they begin trading?

a. \(75

b. \)85

c. \(95

d. \)105

Short Answer

Expert verified

The correct option is: c) $95

Step by step solution

01

Step 1. Explanation

The price of fish in Iceland is $100 per ton, and in Japan is $90 per ton. Hence, Iceland will import fish from Japan as the price in Japan is lower than in Iceland. The price will be between $100 and $90, as Iceland’s consumers will be better off by purchasing fish lower than $100, and Japan’s producers will be better off by selling fish higher than $90. Hence, option c will be the correct option.

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Most popular questions from this chapter

True or False. If Country B has an absolute advantage over Country A in producing bicycles, it will also have a comparative advantage over Country A in producing bicycles.

American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer?

  1. Tariff

  2. Quota

Distinguish among land-, labor-, and capital-intensive goods, citing an example of each without resorting to book examples. How do these distinctions relate to international trade? How do distinctive products, unrelated to resource intensity, relate to international trade?

What form does trade adjustment assistance take in the United States? How does such assistance promote political support for free-trade agreements? Do you think workers who lose their jobs because of changes in trade laws deserve special treatment relative to workers who lose their jobs because of other changes in the economy, say, changes in patterns of government spending?

The accompanying hypothetical production possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. Plot the production possibilities data for each of the two countries separately. Referring to your graphs, answer the following:

New Zealand’s Production Possibilities Table (Millions of Bushels)


Production Alternatives

Product

A

B

C

D

Apples

0

20

40

60

Plums

15

10

5

0


Spain’s Production Possibilities Table (Millions of Bushels)


Production Alternatives

Product

R

S

T

U

Apples

0

20

40

60

Plums

60

40

20

0

  1. What is each country’s cost ratio of producing plums and apples?

  2. Which nation should specialize in which product?

  3. Show the trading possibilities lines for each nation if the actual terms of trade are 1 plum for 2 apples. (Plot these lines on your graph.)

  4. Suppose the optimum product mixes before specialization and trade were alternative B in New Zealand and alternative S in Spain. What would be the gains from specialization and trade?
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