Question

(1)
If the world price is above the domestic equilibrium price, the domestic country is likely to ____________________ the good.
(2)
The difference between what an economy sells to and buys from foreigners is _________________.
(3)
The idea that exchange rates and prices adjust to equalize the cost of living across international boundaries is called __________________________.
(4)
In the graph below, when the world price is $3, how many units are purchased from domestic producers? 0 units 2 units 4 units 5 units
(5)
In the graph below, what is the volume of imports? 0 units 2 units 3 units 5 units

Answer 1

1. If the world price is above the domestic equilibrium price,the domestic country is likely to export the good because domestic supply> domestic demand at the world price.

2. The difference between what an economy sells to and buys from foreigners is net exports.

3. The idea that exchange rate and prices adjust to equalize the cost of living across international boundaries is called purchasing power parity.

4. When the world price =$3. Then , 2 units are purchased from domestic producers. Hence, option(B) is correct.

5. Volume of imports = (5-2) units = 3 units. Hence, option(C) is correct.