IAI Actuarial Core Principles · Business Economics · Importance of international trade
Before trade, a Indian firm's market sells 100 units of a good at ₹50 each. After opening to trade, the world price is ₹40, domestic supply falls to 60 units and domestic demand rises to 140 units. How many units are imported, and what is the expenditure on imports?
Imports are 80 units, because domestic demand of 140 exceeds domestic supply of 60. At the world price of ₹40 the import bill is ₹3,200. Using the old price of ₹50 would wrongly give ₹4,000.
- A40 units, ₹1,600
- B80 units, ₹3,200Correct
- C80 units, ₹4,000
- D140 units, ₹5,600
- 40 units, ₹2,000
Explanation
Imports = demand minus domestic supply = 140 - 60 = 80 units. Expenditure = 80 × ₹40 = ₹3,200. Using 100 units or the old price ₹50 gives wrong figures, and ₹4,000 comes from 80 × ₹50.
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