Figure 18-9

-In Figure 18-9, hostilities break out between Pastaland and Pestoland after Pestoland violates the Treaty of Basil.Consequently, trade stops and the price of pasta
A) rises to OJ in both countries.
B) falls to OC in both countries.
C) falls to OC in Pastaland and rises to OJ in Pestoland.
D) rises to OJ in Pastaland and falls to OC in Pestoland.

Question

Figure 18-9
 
-In Figure 18-9, hostilities break out between Pastaland and Pestoland after Pestoland violates the Treaty of Basil.Consequently, trade stops and the price of pasta
A) rises to OJ in both countries. 
B) falls to OC in both countries. 
C) falls to OC in Pastaland and rises to OJ in Pestoland. 
D) rises to OJ in Pastaland and falls to OC in Pestoland.

Quizplus · Accepted Answer

When trade stops, both Pastaland and Pestoland will face a decrease in supply, causing the price of pasta to rise in both countries. However, since Pastaland has a higher demand for pasta than Pestoland, the price rise will be more significant in Pastaland, causing it to rise to OJ. Meanwhile, Pestoland's lower demand for pasta will result in a lesser increase in price, causing it to rise only to OI. Therefore, the correct choice is D, as the price of pasta will rise to OJ in Pastaland and fall to OC in Pestoland.

Figure 18-9 -In Figure 18-9, Hostilities Break Out Between Pastaland and Pestoland