If there are no barriers to trade,the current domestic price of coffee in Brazil is 8 reals per pound,the U.S.price is $4.50 per pound,and the exchange rate is 3.2 reals to the dollar

Question

Quizplus · Accepted Answer

Given the exchange rate, 8 reals per pound is equivalent to $2.50 per pound ($8 / 3.2 reals/dollar). Since the U.S. price is higher ($4.50 per pound), it would be cheaper for the U.S. to import coffee from Brazil, leading to an increase in demand for Brazilian coffee. This would likely cause the price in Brazil to rise and the price in the U.S. to fall until an equilibrium is reached, hence option D is correct.

If There Are No Barriers to Trade,the Current Domestic Price