International Trade Theory And Policy 10th Edition By Krugman-Test Bank

Exam Question Bank For Theory And Policy of Global Commerce Tenth Edition By Krugman

ISBN-10:0133423670 , ISBN-13:978-0133423679

Chapter 16 (5) Price Ranges and the Currency Exchange Rate in the Long Term
16.1 The Principle of Single Price

1) Which of the following statements is the MOST accurate? The principle of single price stipulates

A) in competitive markets without shipping costs and formal barriers to trade, identical goods sold in different countries must fetch the same price when their values are denoted in the same currency.

B) in competitive markets without shipping costs and formal trade impediments, identical goods sold in the same nation must have the same selling price when their values are represented in the same currency.

C) in competitive markets without shipping costs and formal trade barriers, identical goods sold in different countries should have the same price.

D) identical goods sold in different countries should have the same price when their values are represented in the same currency.

E) in competitive markets without formal trade barriers, identical goods are sold at the same price regardless of shipping costs.

Answer: A

Page Ref: 413-415

Level: Easy

2) According to Purchasing Power Parity

A) E$/E = PUS/PE.

B) E$/E = PE/PES.

C) E$/E = PUS + PE.

D) E$/E = PUS – PE.

E) E$/P = PUS/PE.

Answer: A

Page Ref: 413-415

Level: Easy

3) Elucidate the Principle of Single Price. Provide an illustration.

Answer: The principle of single price asserts that in competitive markets free of shipping costs and trade barriers, identical goods sold in different countries must have the same price when denoted in the same currency.

= (E$/£) × ( ) for good i.

E$/£ = /

If, for instance, the price of the same sweater was lower in London than in New York, U.S. importers and British exporters would be incentivized to purchase sweaters in London and ship them to New York, leading to an increase in the London price and a decrease in the New York price until they equaled out.

Page Ref: 413-415

Level: Moderate

4) Complete the provided table, assuming the principle of single price holds true.

Answer:

Page Ref: 413-415

Level: Moderate

16.2 Purchasing Power Parity

1) According to Purchasing Power Parity

A) E$/E = PiUS/PiE.

B) E$/E = PiE/PiUS.

C) E$/E = PUS/PE.

D) E$/E = PE/PES.

E) E$/E = PiE + PiUS/PiE.

Answer: C

Page Ref: 415-417

Level: Easy

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Exam Question Bank For Theory And Policy of Global Commerce Tenth Edition By Krugman