Assume the price of coffee in Côte d’Ivoireis actually 160 CFA francs per pound of cof-fee. Compute the relative price of coffee inCôte d’Ivoire versus Vietnam. Where willcoffee traders buy coffee? Where will theysell coffee in this case? How will these trans-actions affect the price of coffee in Vietnam?In Côte d’Ivoire?
Question
Assume the price of coffee in Côte d’Ivoireis actually 160 CFA francs per pound of cof-fee. Compute the relative price of coffee inCôte d’Ivoire versus Vietnam. Where willcoffee traders buy coffee? Where will theysell coffee in this case? How will these trans-actions affect the price of coffee in Vietnam?In Côte d’Ivoire?
Solution
To answer this question, we need to know the price of coffee in Vietnam. However, assuming we have that information, here's how you would calculate the relative price:
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Convert the price of coffee in Vietnam to CFA francs (if it's not already in that currency). Let's say for example it's 200 CFA francs per pound.
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Divide the price in Côte d’Ivoire by the price in Vietnam to get the relative price. In this case, 160/200 = 0.8.
This means that coffee in Côte d’Ivoire is cheaper than in Vietnam.
Coffee traders will buy coffee where it's cheaper, so they will buy in Côte d’Ivoire. They will sell coffee where it's more expensive, so they will sell in Vietnam.
These transactions will increase the demand for coffee in Côte d’Ivoire, which will likely drive up the price there. Conversely, it will increase the supply of coffee in Vietnam, which could drive down the price. However, these price changes will also depend on other factors such as the elasticity of demand and supply.
Similar Questions
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