Computer game cartridges produced in EconomyLand sell for $50 each. The same cartridges made in MarketLand sell for $100 each. If free trade were allowed, we would expect the prices in both countries to

Question

Quizplus · Accepted Answer

When free trade is allowed, the two countries can engage in trade with each other without any restrictions. This means that the companies in MarketLand could start producing and selling their game cartridges in EconomyLand, where the cost of production is lower. As a result, the supply of game cartridges in EconomyLand would increase, causing prices to fall. At the same time, the supply of game cartridges in MarketLand would decrease, causing prices to rise. Thus, we would expect the prices in both countries to converge somewhere between the original prices of $50 and $100, depending on the relative costs of production and demand in each country.

Computer Game Cartridges Produced in EconomyLand Sell for $50 Each