Canada and China have significant trade with each other. Which of the following is true? Multiple...

Canada and China have significant trade with each other. Which of the following is true?

Multiple Choice

a. Canada prices increase ⇒ Canada imports increase ⇒ China prices increase.
b. Canada prices decrease ⇒ Canada imports increase ⇒ China prices increase.
c. Canada prices decrease ⇒ Canada exports decrease ⇒ China prices increase.
d. Canada prices increase ⇒ Canada exports increase ⇒ China prices decrease.

Correct answer will get a upvote, just want to double check my answers

Solutions

Expert Solution

If prices of goods in Canada increase, the competitiveness of imported Chinese goods in Canada increases and thus the demand for imports increases. This increase in import demand in Canada increases the price of Chinese goods.

Therefore, if Canada prices increase => Canada imports increase => China prices increase. Option a is correct.

More over, if prices of Canadian goods increases, the export competitiveness of these goods decreases and thus Canadian exports decreases. Option d is incorrect.

Similarly, if prices of Canadian goods decrease, the competitiveness of imported Chinese goods in Canada decreases and thus the demand for imports decreases. The reduction in import demand in Canada leads to a fall in the prices of Chinese goods.

If Canada prices decrease => Canada imports decrease => Chine prices decrease. Option b is incorrect.

If prices of Canadian goods decrease, the export competitiveness of these goods increases and thus Canadina exports increase. Option c is incorrect.

Ans: a. Canada prices increase ⇒ Canada imports increase ⇒ China prices increase.

Rahul Sunny answered 1 year ago

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