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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鈥檚 consumers will be better off by purchasing fish lower than $100, and Japan鈥檚 producers will be better off by selling fish higher than $90. Hence, option c will be the correct option.

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