Consider the economy of Nauru. Nauru produces two goods: phosphate and fish. Suppose you know that...
Consider the economy of Nauru. Nauru produces two goods: phosphate and fish. Suppose you know that the price of phosphate went from 10 pounds of fish per ton of phosphate to 20 pounds of fish per ton of phosphate when Nauru moved from autarky to free trade. What does this information tell you about the pattern of trade between Nauru and their main trading partner?
Homework Answers
Trade generally increased the relative price of the good that the economy is trading with its trading partner. It is given that the price of phosphate is increased in terms of fish per ton. This indicates that the economy of Nauru is producing and specialising in phosphate and will be exporting the same in exchange for fish.
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