re: 73.4% Resources Chi 8 of 19 The country of Sabora currently bans all interna
ID: 1133200 • Letter: R
Question
re: 73.4% Resources Chi 8 of 19 The country of Sabora currently bans all international trade. Sabora makes high-quality spears and is currently producing as many spears as the local population wishes to buy at $50 each. Other countries currently produce and sell spears at $125 each. The newly elected president of Sabora decides to allow international trade for the first time in Sabora's existence. They will begin trade next year. Saboran spear-makers will happily engage in trade. Assume there is free trade, and that Sabora will sell all the spears they make. Note that not all statements will be used. What will happen to the quantity and price of Sabora's spears next year? Answer Bank Sabora's supply curve will shift to the right.Explanation / Answer
Answer : According to given informations, before international trade in Sabora the price of each spear is $50. But at the same time the price of each spear in other countries is $125. This means that the production cost of Sabora's spear is low in comparison of other countries. Therefore, Sabora is specialized in producing spears.
Now, if Sabora engage in international trade in next year then the price of each Sabora spear will rise. Let each Sabora spear price is $100 after engaging with international trade. As $100 is less than $125 hence the demand for Sabora spear increase in international market. As demand for Sabora spear increase in international market, Sabora increase it's production level of spear and sell all. This means that quantity level increase for Sabora spears. On the other hand, in Sabora the domestic price also will remain same as international market price $100 for each Sabora spear. Because producers will not take less price than $100 after free trade. As other countries' selling price is $125 for each spear, hence domestic consumers has no any option to buy each spear in less than $100 price level.
Therefore, after engaging with international trade in next year the price of each Sabora spear and the quantity of Sabora spears both of them wil increase.
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