Figure 34-9

In Figure 34-9, hostilities break out between Pastaland and Pestoland after Pestoland violates the Treaty of Basil. Consequently, trade stops and the price of pasta

Question

Figure 34-9

In Figure 34-9, hostilities break out between Pastaland and Pestoland after Pestoland violates the Treaty of Basil. Consequently, trade stops and the price of pasta

Quizplus · Accepted Answer

According to the graph, the initial equilibrium price and quantity of pasta for both countries is P and Q. When trade stops due to hostilities, Pastaland stops importing pasta from Pestoland, causing a decrease in supply in Pastaland and an increase in supply in Pestoland. Therefore, the price of pasta in Pastaland rises to OJ and the price in Pestoland falls to OC, resulting in a new equilibrium.

Figure 34-9 In Figure 34-9, Hostilities Break Out Between Pastaland and Pestoland