International Economics 13th Edition by Robert Carbaugh

Exercise 10

Assume the United States exports 1,000 computers at a price of $3,000 each and imports 150 UK autos at a price of £10,000 each. Assume that the dollar/pound exchange rate is $2 per pound.
a. Calculate, in dollar terms, the U.S. export receipts, import payments, and trade balance value. b. Suppose the dollar's exchange value depreciates by 10 percent. Assuming that the price elasticity of demand for U.S. exports equals 3.0 and the price elasticity of demand for U.S. imports equals 2.0, does the dollar depreciation improve or worsen the U.S. trade balance? Why? c. Now assume that the price elasticity of demand for U.S. exports equals 0.3 and the price elasticity of demand for U.S. imports equals 0.2. Does this change the outcome? Why?