SCENARIO: SUGAR TRADE IN BIRDONIA

question 6

Multiple Choice

SCENARIO: SUGAR TRADE IN BIRDONIA
In autarky, suppose that equilibrium sugar price is $100 per
Ton in Birdonia, a small agricultural nation.Now, suppose
Birdonia engages in free trade with the rest of the world.
The world price of sugar is $125 per ton.
Reference: Ref 10­1
(Scenario: Sugar Trade in Birdonia) What will happen to the
Domestic price of sugar in Birdonia?

• A)It will rise to $125 per ton.
• B)It will fall by $25 per ton.
• C)It will remain $100 per ton.
• D)It will first rise to $125 per ton, then fall to $100 per ton.

---

Definitions:

Earnings Retention Ratio

The earnings retention ratio, also known as the plowback ratio, measures the percentage of net income that is retained in the company rather than being paid out as dividends.

Market Capitalization Rate

Market capitalization rate, or "cap rate", is used in evaluating and comparing the expected returns on investments in the equity market, reflecting the cost of capital for a company.

P/E Ratio

The price-to-earnings ratio, a valuation metric calculated by dividing the current market price of a stock by its earnings per share.

Dividend Plowback Ratio

The portion of a company's earnings that is not distributed as dividends but is reinvested in the business, also known as the retention rate.