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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

Assume that the comparative-cost ratios of two products鈥攂aby formula and tuna fish鈥攁re as follows in the nations of Canswicki and Tunata:

Canswicki: 1 can baby formula 鈮� 2 cans tuna fish

Tunata: 1 can baby formula 鈮� 4 cans tuna fish

In what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula 鈮� 2 1/2 cans tuna fish; (b) 1 can baby formula 鈮� 1 can tuna fish; (c) 1 can baby formula 鈮� 5 cans tuna fish?

Suppose that the opportunity-cost ratio for sugar and almonds is 4S 鈮� 1A in Hawaii but 1S 鈮� 2A in California. Which state has the comparative advantage in producing almonds?

  1. Hawaii

  2. California

  3. Neither

Explain: 鈥淭he United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China.鈥� Relate your answer to the ideas of Adam Smith and David Ricardo.

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 an export supply curve? What is an import demand curve? How do such curves relate to the determination of the equilibrium world price of a tradable good?
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