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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

In 2018, manufacturing workers in the United States earned average compensation of \(21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of \)3.20 per hour. How can U.S. manufacturers possibly compete? Why isn鈥檛 all manufacturing done in Mexico and other low-wage countries?

Which of the following are benefits of international trade?

Choose one or more answers from the choices shown.

  1. A more efficient allocation of resources.

  2. A higher level of material well-being.

  3. Gains from specialization.

  4. Promoting competition.

  5. Deterring monopoly.

  6. Reducing the threat of war.

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, 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

How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? How might import competition lead to quality improvements and cost reductions by U.S. firms?
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