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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 a country is open to international trade, the domestic price of a product can differ from the international price of that product.

Refer to Figure 3.6, page 57. Assume that the graph depicts the U.S. domestic market for corn. How many bushels of corn, if any, will the United States export or import at a world price of \(1, \)2, \(3, \)4, and \(5? Use this information to construct the U.S. export supply curve and import demand curve for corn. Suppose that the only other corn-producing nation is France, where the domestic price is \)4. Which country will export corn; which county will import it?

In Country A, a worker can make 5 bicycles per hour. In Country B, a worker can make 7 bicycles per hour. Which country has an absolute advantage in making bicycles?

  1. Country A

  2. Country B

Suppose that the opportunity-cost ratio for watches and cheese is 1C ≡ 1W in Switzerland but 1C ≡ 4W in Japan. At which of the following international exchange ratios (terms of trade) will Switzerland and Japan be willing to specialize and engage in trade with each other? Select one or more answers from the choices shown.

  1. 1C ≡ 3W

  2. 1C≡1/2W

  3. 1C ≡ 5W

  4. 1/2C≡1W

  5. 2C ≡ 1W

Suppose that the current international price of wheat is \(6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in the United States end up higher or lower than \)6?

  1. Higher.

  2. Lower.

  3. It will stay the same.
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