According to the table above what would the flows of trade be between both countries if the exchange rate were $1 = 2.5 pesos?
What will be an ideal response?
At this exchange rate residents of the United States would still find paper in Mexico relatively expensive. The reason is that one ream of it in the United States costs $1 . However, at prevailing exchange rates that would not be enough to purchase an equivalent amount of paper in Mexico at 3 pesos. Residents of Mexico would find that paper in the United States is comparatively cheaper since it requires 3 pesos to purchase domestically but only 2.5 pesos to purchase it from the United States. With respect to plastics, residents of the United States face a domestic price of $4 . If they take their $4 and exchange them for pesos they will obtain 10 pesos in return. This will allow them to purchase more plastics in Mexico with the same amount of dollars domestically. However, residents of Mexico will find that their 8 pesos does not even purchase one metric ton of plastic in the U.S. They will purchase plastics domestically.
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Total surplus or gains created from trade equal
a. Seller surplus b. Buyer surplus c. The summation of seller and buyer surplus d. Profits earned by a firm
Figure 3-23
Refer to . It is apparent from the figure that
a.
the good is inferior.
b.
the demand for the good decreases as income increases.
c.
the demand for the good conforms to the law of demand.
d.
All of the above are correct.
Which of the following is NOT an explicit cost?
A. rent B. taxes C. opportunity cost of using an owner's savings D. wages
A characteristic of long-run equilibrium is the economy is producing its potential output. This is:
A. defined as using 80 percent of the economy's resources at any time. B. the level of output consistent with an unemployment rate of 7.5%. C. the level of output the economy produces when its resources are used at normal rates. D. the maximum level of output the economy could produce at any time.