a. The US imports good A from Europe and exports good B to Europe. The quantity of

imports of good A is 400. The quantity of exports of good B is 200. Prices are set in

the producer's currency (PCP): 10 Euros for good A and $20 for good B. The current

exchange rate is $1/Euro. The import price elasticity is 2 and the export price elasticity

is 1. Compute the US trade balance before and after a 10 percent appreciation of the

dollar.

b. How does your answer to the previous question change under LCP, where exporters set

prices in the importer's currency ($10 for good A and 20 Euros for good B)?

c. How does your answer change when all prices are set in dollars ($10 for good A and

$20 for good B)?