Great Britain and the United States produce cheddar cheese and blue cheese Current domestic prices per pound for each type of cheese are given in the following table United States $35 $50 Cheddar cheese Blue cheese Great Britain £12 (25 Suppose the exchange rate is 1-51. If the price ratios within each country reflect resource use. Great Britain has a comparative advantage in the production of cheddar cheese United States has a comparative advantage in the production of blue cheese Assume there are no other trading partners and that the only motive for holding foreign currency is to buy foreign goods Explain whether the current exchange rate will lead to trade flows in both directions between the two countries. OA Only cheddar cheese produced in Great Britain will be traded for blue cheese produced in the United States B. Cheddar cheese and blue cheese will be purchased in Great Britain and sold in the United States OC. Cheddar cheese and blue cheese will be purchased in the United States and sold in Great Britain OD. Only cheddar cheese produced in the United States will be traded for blue cheese produced in Great Britain OE Trade will not occur What adjustments might you expect in the exchange rate? Relative to the British pound, the US dollar will become stronger After the exchange rate has adjusted cheddar cheese produced in Great Britain will be consumed in the United States and blue cheese produced in the United States will be consumed in Great Britain
Great Britain and the United States produce cheddar cheese and blue cheese Current domestic prices per pound for each type of cheese are given in the following table United States $35 $50 Cheddar cheese Blue cheese Great Britain £12 (25 Suppose the exchange rate is 1-51. If the price ratios within each country reflect resource use. Great Britain has a comparative advantage in the production of cheddar cheese United States has a comparative advantage in the production of blue cheese Assume there are no other trading partners and that the only motive for holding foreign currency is to buy foreign goods Explain whether the current exchange rate will lead to trade flows in both directions between the two countries. OA Only cheddar cheese produced in Great Britain will be traded for blue cheese produced in the United States B. Cheddar cheese and blue cheese will be purchased in Great Britain and sold in the United States OC. Cheddar cheese and blue cheese will be purchased in the United States and sold in Great Britain OD. Only cheddar cheese produced in the United States will be traded for blue cheese produced in Great Britain OE Trade will not occur What adjustments might you expect in the exchange rate? Relative to the British pound, the US dollar will become stronger After the exchange rate has adjusted cheddar cheese produced in Great Britain will be consumed in the United States and blue cheese produced in the United States will be consumed in Great Britain
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Great Britain and the United States produce cheddar cheese and blue cheese. Current domestic prices per pound for each type of cheese are given in the following table
United States
$35
$50
Cheddar cheese
Blue cheese
Great Britain
£12
€25
Suppose the exchange rate is £1 = 51.
If the price ratios within each country reflect resource use, Great Britain has a comparative advantage in the production of cheddar cheese.
United States has a comparative advantage in the production of blue cheese.
Assume there are no other trading partners and that the only motive for holding foreign currency is to buy foreign goods
Explain whether the current exchange rate will lead to trade flows in both directions between the two countries
the exchange rate?
OA. Only cheddar cheese produced in Great Britain will be traded for blue cheese produced in the United States
B. Cheddar cheese and blue cheese will be purchased in Great Britain and sold in the United States
OC. Cheddar cheese and blue cheese will be purchased in the United States and sold in Great Britain
OD. Only cheddar cheese produced in the United States will be traded for blue cheese produced in Great Britain
OE Trade will not occur.
What adjustments might you expect in
Relative to the British pound, the U.S. dollar will become stronger
After the exchange rate has adjusted, cheddar cheese produced in Great Britain will be consumed in the United States and blue cheese
produced in the United States will be consumed in Great Britain
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