Assume the Canadian Demand Elasticity for Imports Equals 1

question 103

Multiple Choice

Assume the Canadian demand elasticity for imports equals 1.2,while the foreign demand elasticity for Canadian exports equals 1.8.Responding to a trade deficit,suppose the Canadian dollar depreciates by 10 percent.For Canada,the depreciation would lead to a(n) :

• A) Worsening trade balance--a larger deficit
• B) Improving trade balance--a smaller deficit
• C) Unchanged trade balance
• D) None of the above

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Definitions:

Transitivity

A principle in decision making that if option A is preferred over B, and B is preferred over C, then A should be preferred over C.

Marginal Utility

The extra pleasure or advantage obtained from using an additional unit of a product or service.

Potato Chips

A popular snack made from thin slices of potatoes that are fried or baked until crispy, often seasoned with various flavors.

Cola

A carbonated soft drink flavored with extract from cola nuts along with other flavorings.