Question

The world price of a ton of steel is $650. Before Russia allowed trade in steel, the price of a ton of steel there was $1,000. Once Russia allowed trade in steel with other countries, Russia began a. exporting steel and the price per ton in Russia decreased to $650. b. exporting steel and the price per ton in Russia remained at $1,000. c. importing steel and the price per ton in Russia decreased to $650. d. importing steel and the price per ton in Russia remained at $1,000.

Answer 1

Answer:

The correct answer is option c.

Explanation:

The world price of a ton of steel is $650.  

During the autarky, the price of steel in Russia was $1,000.  

After the trade, the price fell to $650. This means that Russia started importing steel from other countries where it was cheaper. This caused the price of steel in Russia to fall to the level of the world price.  

This happens because at price $1,000 consumers will purchase from foreign producers. This will reduce the demand for domestic producers. This decrease in demand will shift the demand curve to the left such that the price falls to $650.