If the price of new automobiles rises in the U.S.market while prices remain unchanged in foreign markets,
A) foreign firms will want to export fewer automobiles to the United States
B) foreign firms will want to export more automobiles to the United States
C) foreign firms will not change their exports to the United States since it is a different market
D) U.S.firms will want to export more automobiles to foreign markets
E) U.S.firms will not change their exports to foreign markets unless foreign prices also change

Question

Quizplus · Accepted Answer

When the price of new automobiles rises in the U.S. market while prices remain unchanged in foreign markets, foreign firms will find it profitable to export more automobiles to the U.S. market as they can command a higher price. This is because the rise in prices in the U.S. market will create a price differential between the U.S. and foreign markets, giving foreign firms an opportunity to exploit this difference and increase their revenue by selling more cars to the U.S. market.

If the Price of New Automobiles Rises in the U