Answer to Question #153350 in Macroeconomics for a12

Question

Table below shows the domestic price of paper and plastic in Malaysia and Thailand.

Domestic Price for Paper (per rim) and Plastic (per kilogram)

In Malaysia and Thailand

Malaysia Thailand

Paper MYR5 100 baht

Plastic MYR3 80 baht

Domestic Price for Paper (per rim) and Plastic (per kilogram)

In Malaysia and Thailand

Malaysia Thailand

Paper MYR5 100 baht

Plastic MYR3 80 baht

a) At exchange rate MYR1=10 baht, will there be a bilateral trade? Explain your answer.

b) At exchange rate MYR1=25 baht, will there be a bilateral trade? Explain your answer.

Answer 1

a) At exchange rate MYR1=10 baht, there will be no bilateral trade, because both products are comparatively cheaper in Malaysia.

b) At exchange rate MYR1=25 baht, there will be a bilateral trade, because now paper is cheaper in Thailand, and plastic is cheaper in Malaysia.