Suppose that imports and exports in an industry are $100 million and $200 million, respectively. Will the index of intra-industry trade for this industry rise, fall, or remain unchanged if exports fall to $100 million?
A) It will rise.
B) It will fall.
C) It will remain unchanged.
D) There is not enough information to determine how the index will change.

Question

Quizplus · Accepted Answer

The index of intra-industry trade is calculated as (2 * min(exports, imports)) / (exports + imports). Initially, it is (2 * 100) / (100 + 200) = 0.67. If exports fall to $100 million, the index becomes (2 * 100) / (100 + 100) = 1. Thus, the index will rise.

Suppose That Imports and Exports in an Industry Are $100