Suppose that country I is importing good Y and exporting good X. At a terms of trade of 1X:3Y, country I is willing to import 90 units of Y and to export 30 units of X in exchange; at a terms of trade of 1X:4Y, country I is willing to import 128 units of Y and to export 32 units of X in exchange. Considering just these two offer curve points, country I's demand for imports over the range between these two points is __________.
A) inelastic
B) unit elastic
C) elastic
D) inelastic, unit elastic, or elastic - cannot be determined without more
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Question

Quizplus · Accepted Answer

The range between the two offer curve points shows that as the terms of trade become more favorable (from 1X:3Y to 1X:4Y), country I is willing to demand a larger quantity of imports (from 90 units of Y to 128 units of Y). This indicates that country I's demand for imports is elastic over this range, as the change in the price ratio has a larger effect on the quantity demanded.

Suppose That Country I Is Importing Good Y and Exporting