The table shows a schedule of the import demand in Country $ A $ and the export supply in Country $ B $ at various dollar prices. Column 1 is the price of the product. Column 2 is the quantity demanded for imports $ \left(Q_{\text {diA) }}\right. $ in Country $ A $. Column 3 is the quantity of exports supplied $ \left(Q_{se B)}\right. $ by Country $ B $.
$\begin{array}{|c|c|c|}
\hline \text { Price } & Q_{\text {diA }} & Q_{\text {SeB }} \
\hline \$ 4.00 & 0 & 200 \
\hline 3.00 & 100 & 100 \
\hline 2.00 & 200 & 0 \
\hline 1.00 & 300 & 0 \
\hline
\end{array}$ The equilibrium world price in this two-nation model will be

Question

Quizplus · Accepted Answer

In a two-nation model, the world price will be between the opportunity costs of the two nations. In this case, Nation A's opportunity cost is 2 units of wheat for 1 unit of cloth (2/1), while Nation B's opportunity cost is 3 units of wheat for 1 unit of cloth (3/1). The world price will be somewhere between these two ratios, closer to the lower ratio since Nation A has a comparative advantage in producing cloth. Thus, the world price will be closer to 2/1, which is $3.00.

The Table Shows a Schedule of the Import Demand in Country