Figure 8.1
Market for Traditional Beans in Small Village

-According to Figure 8.1,if we define LIP as the local import price,EP as the external market price,LEP as the local export price,and AP as the autarky price,which distance represents the transfer costs of purchasing beans from the big city?

Question

Figure 8.1
Market for Traditional Beans in Small Village
 
-According to Figure 8.1,if we define LIP as the local import price,EP as the external market price,LEP as the local export price,and AP as the autarky price,which distance represents the transfer costs of purchasing beans from the big city?

Quizplus · Accepted Answer

The transfer costs represent the difference between the local import price (LIP) and the external market price (EP), because this is the cost of purchasing beans from the big city. Therefore, the distance represented by transfer costs is LIP minus EP.

Figure 8.1 Market for Traditional Beans in Small Village