Question

Suppose that Norway is a small country and currently produces 100,000 board feet of lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500 per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet and its consumption increases to 200,000 board feet. How many board feet of lumber does Norway now import?
A) 250,000 board feet
B) 200,000 board feet
C) 150,000 board feet
D) 100,000 board feet

Answer 1

Answer:

The correct answer is C) 150,000 board feet.

Explanation:

In order to meet domestic demand, Norway must import the goods produced in other countries, which means that there is no price increase due to the shortage of the good.

If Norway only produces 50,000 board feets and the demand is 200,000, then it will be forced to introduce the missing amount that comes from other countries.