In March 2014, Canada and South Korea completed a free-trade agreement. In the a

Question

In March 2014, Canada and South Korea completed a free-trade agreement. In the agreement, South Korea eliminated its 20.5 percent tariff on Canadian live lobsters. Prior to the trade agreement, Canada exported 8,500 kilograms of live lobsters to South Korea per year, with an average selling price per kilogram in South Korea of 42,000 won (the currency used in South Korea). With the elimination of the live-lobster tariff, which of the answer choices gives a correct prediction of the amount of live lobsters exported by Canada to South Korea and the average selling price, respectively?

8,800 kilograms and 44,000 won

9,400 kilograms and 39,500 won

8,200 kilograms and 45,600 won

7,900 kilograms and 41,750 won

8,800 kilograms and 44,000 won

9,400 kilograms and 39,500 won

8,200 kilograms and 45,600 won

7,900 kilograms and 41,750 won

Explanation / Answer

since Canada and South Korea completed a free-trade agreement and eliminated all the tariffs, it should be kept in mind that this agrrement is gonna increase the live-lobster trade in quantity between the two countries. from this fact, all the alternatives which consists lower live-lobster quantity than 8,500 kilograms would be out of our concern. therefore, only alternatives left now are:- A and B.

now, before the elimination of 20.5% tariff on Canadian live lobsters, Canada exported its 8,500 kilograms of live lobsters to South Korea per year, with an average selling price per kilogram in South Korea of 42,000 won, if this is the case then why would south korea purchase higher quantity of canadian live lobsters at higher average selling price per kilogram than 42,000 won even after the elimination of all type of tariffs ( Alternative A) ?

thus, option A is also not consistent with this situation. Hence, Option B ( 9,400 kilograms and 39,500 won ) is corect.

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