When a country exports a good because the world price is higher than the no-trade domestic price, domestic purchases of the good ________ and domestic production of the good ________.
A) increase; decreases
B) decrease; increases
C) increase; increases
D) do not change; increases
E) decrease; decreases

Question

Quizplus · Accepted Answer

When a country exports a good, it means that the world price for that good is higher than the no-trade domestic price. As a result, domestic purchases of the good will decrease as the higher world price makes it more expensive for domestic consumers to purchase. However, domestic production of the good will increase as producers can sell their goods at a higher price in the world market. Thus, the correct choice is B, where domestic purchases decrease and domestic production increases.

When a Country Exports a Good Because the World Price