Question

Suppose that Norway is a small country and currently produces 100,000 board feet of lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500 per 1,000 board feet. As a result of trade, Norway production falls to 50,000 board feet and its consumption increases to 200,000 board feet. Reference: Ref 8-3 (Scenario: Production in Norway) How many board feet of lumber does Norway now import?
A) 250,000 board feet
B) 200,000 board feet
C) 150,000 board feet
D) 100,000 board feet

Answer 1

Answer:

The answer is: C) 150,000 board feet

Explanation:

Before Norway used to produce 100,000 board feet of lumber with a total price of $60,000 (= 100,000 x $600 per 1,000). Since it started trading with other countries, the price of wood fell to $500 per 1,000 board feet.

That decrease in price reduced the quantity supplied by local firms to only 50,000 board feet and increased the quantity demanded by local consumers to 200,000 board feet of wood. The difference between quantity demanded and quantity supplied (150,000 board feet of wood) was covered by imports.