Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases exports as foreign buyers seek cheaper alternatives.
B
It increases exports due to higher profit margins for producers.
C
It has no effect as demand remains constant regardless of price.
D
It increases exports as the domestic currency strengthens.
Understanding the Answer
Let's break down why this is correct
Answer
A significant rise in inflation, such as a 25% increase in electric vehicle prices, can negatively affect export levels for a country like Faron. When prices for products rise sharply, they become more expensive for buyers in other countries. This may lead to a decrease in demand for Faron's electric vehicles, as foreign customers might look for cheaper alternatives from other manufacturers. For example, if a car that used to cost $30,000 now costs $37,500, buyers in different countries may decide to purchase vehicles from countries with lower prices instead. As a result, Faron's exports could decline, affecting its economy and the jobs related to the production and sale of those vehicles.
Detailed Explanation
When prices go up a lot, foreign buyers look for cheaper options. Other options are incorrect because Some might think higher prices mean more profit for sellers; It's a common belief that demand stays the same no matter the price.
Key Concepts
Inflation effects on trade
Price elasticity of demand
Export dynamics
Topic
Inflation and Trade Effects
Difficulty
hard level question
Cognitive Level
understand
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