Suppose country A and country B are the only two countries in the world. Country A imports good X from country B and exports good Y. In the absence of any transportation cost, at the world price of good X:
A)country B's export supply curve is perfectly inelastic.
B)both country A's import demand curve and country B's export supply curve are positively sloped.
C)country A's import demand curve will be perfectly inelastic.
D)country A's import demand curve will intersect country B's export supply curve.

Question

Quizplus · Accepted Answer

If country A's import demand curve intersects country B's export supply curve, then there will be a price at which they will trade. This price will be the world price of good X. Therefore, in the absence of any transportation cost, country B's export supply curve will be perfectly elastic at the world price. However, both country A's import demand curve and country B's export supply curve will be positively sloped because as the price of X increases, country A will demand less of X and country B will supply more of X.

Suppose Country a and Country B Are the Only Two