(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, at the world price of $125 there is a ________ of ____ in the home market, which is ____.
A) surplus; 60; imported
B) shortage; 60; imported
C) surplus; 60; exported
D) shortage; 100; exported

Question

(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply.  According to the graph, at the world price of $125 there is a ________ of ____ in the home market, which is ____.
A) surplus; 60; imported 
B) shortage; 60; imported 
C) surplus; 60; exported 
D) shortage; 100; exported

Quizplus · Accepted Answer

At the world price of $125, the quantity demanded by the home market (D) is 40 and the quantity supplied by the home market (S) is 100. Therefore, there is a surplus of 60 in the home market. Since the home exporter is a small exporter, they cannot influence the world price and must accept it as given. Thus, they will export the surplus of 60 units, which is indicated by the upward arrow in the graph going from S to S+60.

(Figure: Home's Exporting Industry I) the Graph Shows Information About