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Three countries -- Pumpland (P), Xiland (X) and Cheeseland (C) -- trade among themselves and with the (other countries in) Rest of World (ROW). All trade volumes are given in IC (international currency). The following terminology is used:

  • Trade balance = Exports - Imports
  • Total trade = Exports + Imports
  • Normalized trade balance = Trade balance / Total trade, expressed in percentage terms

The following information is known.

  1. The normalized trade balances of P, X and C are 0%, 10%, and -20%, respectively.
  2. 40% of exports of X are to P. 22% of imports of P are from X.
  3. 90% of exports of C are to P; 4% are to ROW.
  4. 12% of exports of ROW are to X, 40% are to P.
  5. The export volumes of P, in IC, to X and C are 600 and 1200, respectively. P is the only country that exports to C.

What is the trade balance of ROW?

Solution

✅ Correct Option: 4
Slide 1/7

The data describes bilateral trade flows among four entities: P, X, C and ROW. The natural way to organise this is a matrix where each row is an exporting entity and each column is an importing entity. The cell in row AA, column BB holds the volume exported from AA to BB.

Row totals give each entity's total Exports; column totals give total Imports.

Domestic trade for P, X, C is not counted as trade, so those diagonal cells are marked ——. ROW represents many countries, so ROW→ROWROW\to ROW (trade among rest-of-world countries) is a genuine flow and must be tracked.


Using normalized balance =E−ME+M=\dfrac{E-M}{E+M}, the three balance conditions convert to:

P: 0%⇒E=M0\% \Rightarrow E = M.

X: 10%⇒0.9E=1.1M⇒M=911E10\% \Rightarrow 0.9E = 1.1M \Rightarrow M = \tfrac{9}{11}E.

C: −20%⇒1.2E=0.8M⇒M=1.5E-20\% \Rightarrow 1.2E = 0.8M \Rightarrow M = 1.5E.

FromPXCROWExports
P—
X—
C—
ROW
Imports
FromPXCROWExports
P—6001200
X—0
C—
ROW0
Imports1200

From clue 5, P→X=600P\to X = 600 and P→C=1200P\to C = 1200 are filled directly.


Clue 5 also states P is the only country exporting to C. Hence X→C=0X\to C = 0 and ROW→C=0ROW\to C = 0, and all of C's imports come from P:

Imports of C =1200= 1200.

FromPXCROWExports
P—6001200
X—0
C72048—32800
ROW0
Imports1200

C's row is filled. For C, MC=1.5 ECM_C = 1.5\,E_C and MC=1200M_C = 1200, so EC=800E_C = 800.


Clue 3 splits C's exports: 90%90\% to P, 4%4\% to ROW, leaving 6%6\% to X.

C→P=0.90×800=720C\to P = 0.90\times 800 = 720.

C→ROW=0.04×800=32C\to ROW = 0.04\times 800 = 32.

C→X=0.06×800=48C\to X = 0.06\times 800 = 48.

Exports of C =800= 800.

FromPXCROWExports
P—60012002002000
X—0
C72048—32800
ROW0
Imports20001200

Let MPM_P denote imports of P. Since P's balance is 0%0\%, exports of P also equal MPM_P.

Exports of P =600+1200+(P→ROW)=1800+(P→ROW)= 600 + 1200 + (P\to ROW) = 1800 + (P\to ROW), so P→ROW=MP−1800P\to ROW = M_P - 1800.


Clue 2: X→P=0.22 MPX\to P = 0.22\,M_P and X→P=0.40 EXX\to P = 0.40\,E_X, giving EX=0.55 MPE_X = 0.55\,M_P.

Imports of P =(X→P)+(C→P)+(ROW→P)=0.22MP+720+(ROW→P)=MP= (X\to P)+(C\to P)+(ROW\to P) = 0.22M_P + 720 + (ROW\to P) = M_P,

so ROW→P=0.78MP−720ROW\to P = 0.78M_P - 720.

Clue 4: ROW→P=0.40 EROWROW\to P = 0.40\,E_{ROW}, so EROW=1.95MP−1800E_{ROW} = 1.95M_P - 1800 and ROW→X=0.12EROW=0.234MP−216ROW\to X = 0.12E_{ROW} = 0.234M_P - 216.

Imports of X =600+48+(0.234MP−216)=432+0.234MP= 600 + 48 + (0.234M_P - 216) = 432 + 0.234M_P.

X's 10%10\% balance gives imports =911EX=0.45MP= \tfrac{9}{11}E_X = 0.45M_P.

So 432+0.234MP=0.45MP⇒0.216MP=432⇒MP=2000432 + 0.234M_P = 0.45M_P \Rightarrow 0.216M_P = 432 \Rightarrow M_P = 2000.

Exports of P == Imports of P =2000= 2000, and P→ROW=2000−1800=200P\to ROW = 2000 - 1800 = 200.

FromPXCROWExports
P—60012002002000
X440—06601100
C72048—32800
ROW0
Imports20001200

With MP=2000M_P = 2000, X's row follows.

EX=0.55×2000=1100E_X = 0.55\times 2000 = 1100.

X→P=0.22×2000=440X\to P = 0.22\times 2000 = 440.

Since X→C=0X\to C = 0, the remainder goes to ROW: X→ROW=1100−440=660X\to ROW = 1100 - 440 = 660.

Exports of X =1100= 1100.

FromPXCROWExports
P—60012002002000
X440—06601100
C72048—32800
ROW840252010082100
Imports20009001200

The ROW row is filled.

ROW→P=0.78×2000−720=1560−720=840ROW\to P = 0.78\times 2000 - 720 = 1560 - 720 = 840.

EROW=840/0.40=2100E_{ROW} = 840 / 0.40 = 2100.


Clue 4 gives the split of ROW exports: 40%40\% to P, 12%12\% to X, 0%0\% to C, leaving 48%48\% internal.

ROW→X=0.12×2100=252ROW\to X = 0.12\times 2100 = 252.

ROW→ROW=0.48×2100=1008ROW\to ROW = 0.48\times 2100 = 1008.

Exports of ROW =2100= 2100.

Column X now sums to 600+48+252=900600 + 48 + 252 = 900, matching X's imports.

FromPXCROWExports
P—60012002002000
X440—06601100
C72048—32800
ROW840252010082100
Imports200090012001900

The last column total is computed:

Imports of ROW =200+660+32+1008=1900= 200 + 660 + 32 + 1008 = 1900.


Summary of totals and balances:

P: E=2000E = 2000, M=2000M = 2000, balance 00, total trade 40004000.

X: E=1100E = 1100, M=900M = 900, balance +200+200, normalized +10%+10\%, total trade 20002000.

C: E=800E = 800, M=1200M = 1200, balance −400-400, normalized −20%-20\%, total trade 20002000.

ROW: E=2100E = 2100, M=1900M = 1900, balance +200+200, total trade 40004000.

The world balances sum to 0+200−400+200=00 + 200 - 400 + 200 = 0, as required. All values are uniquely determined.


Exports of ROW =840+252+0+1008=2100= 840 + 252 + 0 + 1008 = 2100; Imports of ROW =200+660+32+1008=1900= 200 + 660 + 32 + 1008 = 1900. Trade balance =2100−1900=200= 2100 - 1900 = 200. This matches option 4 (200), consistent with world balances summing to zero (0+200−400+200=00 + 200 - 400 + 200 = 0).

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