If the ratio of price of cloth (P_C) divided by the price of food (P_F) increases in the international marketplace, then A) the country would import more cloth. B) the food exporter will increase the quantity of food exported. C) the cloth exporter will increase the quantity of cloth produced. D) the cloth exporter will increase the quantity of cloth exported. E) the cloth exporter will decrease the quantity of cloth exported.

Question

Quizplus · Accepted Answer

If the ratio of price of cloth divided by the price of food increases, it means that cloth has become relatively more expensive than food. This will result in an increase in the production and export of cloth as compared to food. Therefore, the cloth exporter will increase the quantity of cloth produced and exported. Option A is incorrect because if cloth has become more expensive, it is less likely that the country would import more cloth. Option B is also incorrect because the increase in the price ratio suggests that the food exporter may not have the resources to increase the quantity of food exported. Option D and E are partially correct but lack the explanation that the increase in the price ratio would result in an increase in the production and export of cloth.

If the Ratio of Price of Cloth (PC) Divided by the Price

If the Ratio of Price of Cloth (P_C) Divided by the Price