(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union between the United States and Mexico. The United States does not produce the product shown in the graph. Imports satisfy its domestic demand (designated by M_US). The curves S_mexandS_asiadescribe Mexican and Asian supplies. Suppose, after the formation of the customs union, Mexico invests in productive technology and it shifts the Mexican supply curve to S^*_Mex. This will result in a price of _____ and imports of _____.

Question

Quizplus · Accepted Answer

With the increase in productive technology in Mexico, the supply curve shifts to the right causing a decrease in price and an increase in quantity demanded. The new equilibrium point is where the new supply curve intersects the original demand curve giving us a price of $150 and imports of 600 units. Therefore, option C is the correct answer.