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Chapter 20: Q9. (page 431)

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.

Short Answer

Expert verified

The given statement is false.

Step by step solution

01

Step 1. Explanation

When a country opens to international trade, it can import and export the product. In such a situation, if the domestic price is more than the international price, the domestic consumer will prefer more goods from the international market. It can boost imports and reduce the demand for domestic production. When the international price is greater than the domestic price, the country exports to earn more revenue. Thus, in the end, the trade leads to price equalization as prices cannot be disparate during international trade and perfect information.

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Most popular questions from this chapter

Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the Euro Zone; and (d) NAFTA.

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?

Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity? On your diagram show a protective tariff that eliminates approximately one-half of the assumed imports. What are the price-quantity effects of this tariff on (a) domestic consumers, (b) domestic producers, and (c) foreign exporters? How would the effects of a quota that creates the same amount of imports differ?

What is the offshoring of white-collar service jobs, and how does it relate to international trade? Why has offshoring increased over the past few decades? Give an example (other than that in the text) of how offshoring can eliminate some U.S. jobs while creating other U.S. jobs.

In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles?

  1. Country A

  2. Country B
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