SCENARIO: RELATIVE PRICES AND TRADE LEVELS
Home has a comparative advantage in wheat, and Foreign has a
Comparative advantage in cloth.Once trade occurs, Home produces
1,000 bushels of wheat, and Foreign produces 1,000 yards of cloth.The
Following table shows the amount of wheat that Home is willing to supply
And Foreign is willing to buy at various international prices.

(Scenario: Relative Prices and Trade Levels) What is the international
Price of wheat?
A)1 yard/bushel
B)3 yards/bushel
C)5 yards/bushel
D)7 yards/bushel

Question

SCENARIO: RELATIVE PRICES AND TRADE LEVELS
Home has a comparative advantage in wheat, and Foreign has a
Comparative advantage in cloth.Once trade occurs, Home produces
1,000 bushels of wheat, and Foreign produces 1,000 yards of cloth.The
Following table shows the amount of wheat that Home is willing to supply
And Foreign is willing to buy at various international prices.

(Scenario: Relative Prices and Trade Levels) What is the international
Price of wheat?
A)1 yard/bushel 
B)3 yards/bushel 
C)5 yards/bushel 
D)7 yards/bushel

Quizplus · Accepted Answer

The international price of wheat is where the quantity of wheat Home is willing to supply equals the quantity of wheat Foreign is willing to buy. This occurs at a price of 5 yards/bushel, which is where 1,000 bushels of wheat intersects with the demand curve of Foreign. This is the point of equilibrium where both countries benefit from trade.