QUESTION 4 The following table describes the market for apples in Europe and Jap

Question

QUESTION 4 The following table describes the market for apples in Europe and Japan, the only two countries in this world. The only other commodity is oranges. Consequently, the price of an apple in the table is measured in oranges. Europe Price Quantity Demanded Quantity Supplied Price Quantity Demanded Quantity Supplied Japan 14 12 10 10 4 4 4 4 10 12 Under free trade, which of the following is correct? aEuropeexports apples to Japan and imports oranges from Japan . Europe exports oranges to Japan and imports apples from Japan Europe exports both apples and oranges to Japan and imports both apples and oranges from Japan d.Even if free trade is allowed, the supply and demand data provide in the question suggests that trade will not occur, as autarky prices are the same in the two countrie:s

Explanation / Answer

Answer

4)

The correct answer is (b) Europe exports oranges to Japan and Inports Apples from Japan

We can see from above Table that In Japan Quantity Demand of Apples = Quantity Supply of Apples When Price of Apple = 2 Oranges and In Europe Quantity Demand of Apples = Quantity Supply of Apples When Price of Apple = 8 Oranges. As price of Apples is lesser in Japan Hence Japan will export Apples And similarly Price of Oranges is lesser in Europe(1/8 apples) is lesser than in Japan(1/2 apples). Hence Europe will export Oranges.

Hence, the correct answer is (b) Europe exports oranges to Japan and Inports Apples from Japan

5)

We can see from the Table above that when Price of Apple = 4 oranges then In Europe Quantity demand > Quantity Supplied and Excess demand = Quantity demand - Quantity Supplied = 8 - 2 = 6

and In Europe Quantity demand < Quantity Supplied and Excess Supply = Quantity Supplied - Quantity Demanded = 8 - 2 = 6. Hence Japan will export 6 apples to europe at Price of Apple = 4 Oranges

Hence After Trade Equilibrium Price of Apples = 4 oranges.

Hence As discussed above Excess Demand = Excess Supply = 6. Hence Amount Of Apples Traded between Europe and Japan = 6 Apples

Hence Answer is 6 Apples

6)

As discussed in above question(5) that Equilibrium Price is Price of Apple = 4 oranges i.e. PA/PO =4 and Japan will export 6 Apples to Europe. Hence If Europe Import 6 apples then Europe will export Oranges woth 6 Apples. As Price of Apple = 4 Oranges and Europe Imports 6 Apples Hence In return Europe will export 6*4 Oranges = 24 Oranges.

Hence Amount Of Oranges Traded between Europe and Japan = 24 Oranges

Hence Answer is 24 Oranges.

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