Back to 2024 set
PEA 2024Question 25mcqModerate

Two countries AA and BB produce wheat and television respectively, with YA=200Y_A=200 and YB=250Y_B=250. The TV price is normalised to 11, the relative price of wheat is pp. Let EAE_A (in wheat units) and EBE_B (in TV units) denote total expenditures. The income identity is pYA+YB=pEA+EBpY_A+Y_B=pE_A+E_B. Initially EA=100E_A=100; AA reduces EAE_A to 7070. Suppose 1/31/3 of each country's expenditure is on wheat. What happens to the equilibrium pp?