Suppose that the world price of oats is 30 cents a kilogram.Canada does not trade internationally,and the equilibrium price of oats in Canada is 40 cents a kilogram.Canada then begins to trade internationally.The price of oats in Canada ________.Canadian consumers buy ________ oats.Canadian firms produce ________ oats.Canada ________ oats.

Question

Quizplus · Accepted Answer

When Canada begins to trade internationally, the domestic price of oats will adjust to the world price of 30 cents per kilogram. Therefore, the equilibrium price in Canada will fall from 40 cents to 30 cents per kilogram. Canadian consumers will buy more oats since the price has fallen. Canadian firms will produce less oats as the domestic price has decreased. Also, Canadian firms will import oats since their production is less than the quantity demanded. Therefore, Canada will import oats.

Suppose That the World Price of Oats Is 30 Cents