If the World Price of a Product Rises Relative to the Domestic

question 44

Multiple Choice

If the world price of a product rises relative to the domestic price in a trading nation, then, for that product,

• A) exports and imports will increase.
• B) exports and imports will decrease.
• C) exports will increase and imports will decrease.
• D) imports will increase and exports will decrease.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of goods sold.

Absorption Costing

A calculation approach that encompasses all expenses of production, such as materials, labor, and all overheads, both variable and fixed, in determining a product's price.

Variable Production Costs

Costs that vary directly with the level of production, such as raw materials and direct labor.

Absorption Costing

This approach to bookkeeping encompasses all production-associated expenses, including direct materials, direct labor, and all manufacturing overheads, both variable and fixed, in calculating the product's price.