Question

International Trade

Domestic Market for

Avocados:

            A)        The world Price for Avocados is $5 per bushel

            B)        Mexico has Comparative Advantage in the production of Avocados

C)        In the U.S. Domestic market for Avocados (with NO imports), the Equilibrium Price of Avocados is $10 per bushel, and the Equilibrium Quantity is 2,500 bushels per month.

Question 1) American Consumers would buy the largest quantity of Avocados under which scenario?

            a) Embargo of all Imports

            b) Tariff on Imports

            c) An Import Quota

            d) Free Trade

Answer 1

Since the given the world Price for Avocados is $5 per busel

Mexico has Comparative Advantage in the production of Avocados

C)        In the U.S. Domestic market for Avocados (with NO imports), the Equilibrium Price of Avocados is $10 per bushel, and the Equilibrium Quantity is 2,500 bushels per month.

( 1)

American Consumers would buy the largest quantity of Avocados when there is free trade because the domestic price is $10 and free trade world price is $15.

The largest quantity of import will be when there is free trade because in case of tariff, price increases and due to import quota the quantity of import is restricted.

Hence

American Consumers would buy the largest quantity of Avocados when there is free trade .

Hence option d is the correct answer.

            d) Free Trade