In a two-country framework, at the world price of a good, _____.

Question

Quizplus · Accepted Answer

At the world price of a good, the excess demand in the importing country is just equal to the excess supply in the exporting country. This is because the world price represents the point where the demand and supply curves of the two countries intersect, and at this point, the excess demand of the importing country can only be met by the excess supply of the exporting country. Therefore, choice B is the correct answer.

In a Two-Country Framework, at the World Price of a Good