Final answer:
The transaction of purchasing $1 million worth of French cheese by a U.S. company is recorded in the current account of the Balance of Payments. This records the inflow and outflow of goods like cheese, reflecting a country's trade balance. Changes in the price of milk or demand due to health studies affect the supply and demand, respectively.
Step-by-step explanation:
When a U.S. company purchases $1 million worth of French cheese, the value of that transaction is recorded in the Balance of Payments (BOP), specifically in the current account under imports. The Balance of Payments is a financial statement that summarizes a country's transactions with other countries, including trade in goods and services, cross-border investment flows, and financial transfers. Recording such a transaction is crucial for understanding a country's trade balance, as it reflects the flow of goods and services in and out of an economy.
Regarding the additional information provided:
- If the price of milk rises and, consequently, the supply of cheese decreases by 80 pounds at every price, this implies that producers are less able or willing to supply cheese at previous prices due to increased production costs.
- Conversely, if a new study declares that eating cheese is good for your health, consequently causing demand to increase by 20% at every price, this indicates a rise in consumer preference for cheese, potentially leading to higher prices or quantity sold, depending on how the supply adjusts in response.