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If there is a drought that ruins the wheat crop of a large

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Doer01

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30 Mar 2019, 13:56

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pike

If there is a drought that ruins the wheat crop of a large wheat exporting county resulting in higher international wheat prices, domestic wheat prices in free-trading countries such as England will increase as well, regardless of how much wheat, if any, that country imports.

If the statement concerning wheat supply is true, which of the following policies in a free-market nation is most likely to reduce the long-term economic impact on that nation of steep and unexpected increases in international wheat prices?

A) Maintaining a large wheat reserve sufficient to meet demand for several months.

(B) Increasing domestic production of wheat for the following year.

(C) Contracting with new wheat exporting nations.

(D) Increasing the number of wheat imports.

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible.

Hi Folks,
Domestic wheat prices in free-trading countries such as England will increase as well, regardless of how much wheat, if any, that country imports.
See what author did there? "Will" is a strong word and makes a prediction 100% certain. What else it makes certain is that C & D are incorrect!!
long-term economic impact in question stem takes care of option A.
Option B is for following year. what good that be for? Price in one year and increased production in next. and how could one be certain about a yield, and that too of following year?
E says reduce consumption. Well, that will take care of things if one does not need to buy wheat in the first place. Isn't it?
Still tool 3 minutes to answer it.

AnamikaLakhole

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14 Apr 2022, 11:22

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sudhir18n

pike

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The only way to reduce dependence is to reduce consumption. If you don't consume wheat, then you are not tied to what's happening in the international market.

The answer is E. There is a very similar question with oil imports in USA in the Verbal Review 2nd Edition.

Obviously the only way to reduce dependence on something is to stop consuming it!

However, the question doesn't refer to dependence, it refers to reducing the long-term economic of price increases.

I.e.
You are dependent on oil, you stop consuming oil.

You want to reduce the long term economic impact of oil price increases. Stopping consumption is one option (but incredibly difficult to achieve), I would suggest stock piling oil is another (not perfect, but you can control the market at certain poitns through increasing local supply)

Hi Pike , looks st this

suppose counrty A requires 100 kgs of wheat every year, they produce only 70 kgk @ 5$ per kg
but international prices are 8 . so imported wheat to meet the demand is 30*8 = 240
total 350+240 = 590

E: if we reduce our consumption from 100 to 70kgs , we are self sufficient , we dont need to import wheat .
so the total amount will only be $ 350.
this is the only option that reduces long term economic impact on the nation because of higher international prices.

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