Question

If the dollar buys fewer bananas in Honduras than in Guatemala, then traders could make a profit by

a. buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras.



b. buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Guatemala.



c. buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Guatemala.



d. buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Honduras.

Answer 1

The correct answer is C)

Step-by-step explanation:

Given that the price for bananas is cheaper in Guatemala, suppliers will be driven to make a quick profit just by buying from the Guatemalan market to sell in the Honduras economy.

This, however, will cause the prices of bananas to rise in Guatemala. Because, according to the basic principles of economics, the higher the demand the higher the price.

Cheers!