Question

The world price of grapefruits is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market?



The price of domestic Cuban grapefruit for consumers will...

(A) Decrease.

(B) Increase.

(C) Not Change.



Cuban exports of grapefruits will...

(A) Decrease.

(B) Increase.

(C) Not Change.

Answer 1

Answer:

B, B

Explanation:

If Cuba decides to open up trade with the world grapefruit market, the price of domestic Cuban grapefruit for consumers will Increase because the opening of trading with the world will decrease amount of grapefruit available for the people in Cuba thereby creating shortage which will lead to increase in price. Cuban exports of grapefruits will Increase by virtue of opening to the rest of the world.