Which country is most likely to have a ƐD for imports + ƐD for exports 1?

Question

Which country is most likely to have a ƐD for imports + ƐD for exports > 1?

BlackTom AI · Accepted Answer

High substitutability of imports raises import-price elasticity, so a country that imports finished products similar to those produced elsewhere will have a large |ƐD_imports|. If import demand responds strongly to price changes (elastic), it contributes a large positive term toward the sum ƐD_imports + ƐD_exports. 1. Relevant concepts - Price elasticity of demand (ƐD): percent change in quantity demanded divided by percent change in price. If |ƐD| > 1 demand is elastic; if |ƐD| < 1 demand is inelastic. - For trade, ƐD_imports measures how import quantities respond to changes in the relative price of imports; ƐD_exports measures how export quantities respond to changes in export prices. - The sum ƐD_imports + ƐD_exports > 1 means total responsiveness of trade volumes (imports plus exports) to price changes is relatively large. 2. Step-by-step reasoning - Imports that are finished products and have close foreign substitutes → consumers and firms can switch suppliers when relative prices change → ƐD_imports is high (likely > 1). - Exports that are basic necessities: globally, necessities often have limited but nonzero price responsiveness. While necessities can be relatively inelastic, basic-necessity exports may still show some responsiveness (e.g., consumption substitution, income effects) so ƐD_exports is positive and potentially moderate. - If ƐD_imports is large enough, even a modest ƐD_exports will make the sum exceed 1: e.g., ƐD_imports ≈ 1.2 plus ƐD_exports ≈ 0.3 gives 1.5 > 1. 3. Intermediate-step illustration - Example numbers: import elasticity = 1.5, export elasticity = 0.4 → sum = 1.9 (>1). This contrasts with the other scenario below. 4. Why the correct answer is correct - The import side in the chosen scenario is highly elastic because finished goods have many substitutes, ensuring a large contribution to the sum. Even if export elasticity is modest (basic necessities), the combined total is plausibly >1. 5. Why other choices are incorrect - "A country which imports basic necessities and exports unique, finished products": imports are inelastic (necessities) and exports of unique goods can be inelastic (few buyers or specific markets), so both elasticities are likely small and their sum likely <1. - "Both of these" is inconsistent because the two descriptions are mutually exclusive. - "Neither of these" is wrong because the second option is the best candidate for a sum >1. 6. Conclusion The best choice is "a country which imports finished products similar to those from other countries and exports basic necessities," which matches the provided answer.

Which country is most likely to have a ƐD for imports + ƐD for exports > 1?Single choice

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