Question

Suppose that a technological advance among Japanese television manufacturers causes the world price of televisions to fall by $80. After the fall in price, consumers buy 1.8 million televisions, of which 300,000 are produced domestically and 1.5 million are imported.Because the United States imports televisions, _________ represents the world price before the technological advance, and _____________ represents the world price after the technological advance.

Answer 1

Answer: Because the United States imports televisions, P2 (GREATER) represents the world price before the technological advance, and P1 (MINOR) represents the world price after the technological advance.

Explanation: The United States has no comparative advantage over the other countries in the production of televisions, therefore it IMPORTS them. Therefore, the price of televisions in the United States under normal conditions is higher than the world price, and as the world price falls as a result of Japan's technological advance, the price in the United States also decreases.