Question

consider the market for good X in the country Xenon. Which of the following statements regarding international trade in good x is correct

Answer 1

Answer:

The options are missing:

• 1. If Xenon imports Good X, the WORLD PRICE of X must be lower than Xenon's pre-trade price of Good X.
• 2. If Xenon has a comparative advantage in Good X, it will import more of Good X after trade.
• 3. If Xenon has a comparative advantage in Good X, Xenon will produce less of Good X after trade.
• 4. If Xenon imports Good X, the WORLD PRICE of Good X must fall.
• 5. If Xenon exports Good X, the WORLD PRICE of X must be lower than Xenon's pre-trade price of Good X.

1. If Xenon imports Good X, the WORLD PRICE of X must be lower than Xenon's pre-trade price of Good X.

In order for a country to import any good, the world price of that good must be lower than its domestic price. If the world price is higher, then there is no reason why anyone would import a good just to pay a higher price. E.g. the world price of corn is $10 per bushel, and the domestic price of corn is $12 per bushel. At these price levels, the country will import corn until the domestic and world price are equal. But if the domestic price is $10 and the world price is $12, then the country will export corn until both prices are equal.