Suppose That Country I Is Importing Good Y and Exporting

question 4

Multiple Choice

Suppose that country I is importing good Y and exporting good X. At a terms of trade of 1X:4Y, country I is willing to import 60 units of Y and to export 15 units of X in exchange; at a terms of trade of 1X:5Y, country I is willing to import 75 units of Y and to export 15 units of X in exchange. Considering just these two offer curve points, country I's demand for imports between the two points is __________.

• A) elastic
• B) unit-elastic
• C) inelastic
• D) elastic, unit-elastic, or inelastic - cannot be determined without more
• Information

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Definitions:

Average Revenue Product

The increase in total revenue resulting from employing one more unit of a resource, holding all other factors constant.

Substitution Effect

The alteration in the consumption of goods as a result of changes in their relative prices, leading consumers to substitute more expensive items with cheaper alternatives.

Output Effect

The change in total revenue resulting from selling additional units due to a price decrease, in the context of price elasticity of demand.

Income Effect

A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.