(a)
To explain:
The market adjustment to keep Molson beer price same.
Explanation of Solution
As the goods are cheaper in the U.S. and are costlier in Canada, the supplier will sell their good more in the market where the return is high is Canada. This will decrease the supply of beer in the US and increase in Canada.
At a higher supply, the cost of the beer will fall in Canada and at a lower supply, the cost of beer will rise in the US. This will continue to the point where the cost of beer in both the countries is equal.
Exchange rate:
Exchange rate is that value at which one currency is traded over another. Higher currency rate is better and shows the strength of the economy.
(b)
To explain:
The difference in price of Molson beer if Canadian likes beer compared to U.S.
Explanation of Solution
If the Beer is more liked in Canada, then the price will not fall. As the price elasticity is less in Canada the supplier will maintain the quantity supplied and earn a higher profit. It will further increase the price and increase the differential.
Exchange rate:
Exchange rate is that value at which one currency is traded over another. Higher currency rate is better and shows the strength of the economy.
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Chapter 33 Solutions
PRINCIPLES OF ECONOMICS-ACCESS
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