Q: Given the Tsunami and Earthquake in Japan, what are the short and long term price implications on the world price for rice? Would you see the same situation in Japan itself? (2 page)

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Irving HeathcoteLv2

19 Jul 2018

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Assume that American rice sells for $100 per bushel, Japanese rice sells for 16,000 yen per bushel, and the nominal exchange rate is 80 yen per dollar.

(a) Explain how you could make a profit from this situation. What would be your profit per bushel of rice? If other people exploit the same opportunity, what would happen to the price of rice in Japan and the price of rice in the United States

(b) Suppose that rice is the only commodity in the world. What would happen to the real exchange rate between the United States and Japan?

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Assume that American rice sells for $100 per bushel, Japanese rice sells for 16,000 yen per bushel, and the nominal exchange rate is 80 yen per dollar.

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Suppose that rice is the only commodity in the world. What would happen to the real exchange rate between the United States and Japan?

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The rice prices have increased by 70% since last year. This trend has been accelerated in recent weeks and several parts of the world have already experienced food riots and protests over these price increases. Several rice-producing countries have imposed limitations on rice exports and even retailers in the United States have limited the quantity of rice each customer can buy. Increase in population, and draught in some rice-producing areas are mentioned as contributing factors in this crisis. Assume that the rice market is a perfectly free market and was in its long-run equilibrium prior to these events. Comment on what will happen in the rice market in the short and long-run.