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Problem related to direct foreign investment

China is a huge manufacturer of technology of telephone devices. It has lately become a member of W.T.O. that means it can sell its products in other member countries such as India. Assume that it does export a big number of telephone instruments to India:

(i) How will it influence the price and quantity sold of telephone devices in India?

(ii) Assume that the demand for telephone devices is relatively elastic. How will it influence India’s total expenses on telephone devices?

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Answer:

(i) As an outcome of big export of telephone devices by Chine to India, the market supply of telephone instruments rises. It decreases the price of telephone devices while the quantity sold will rise.

(ii) When the demand for telephone devices is relatively elastic, reduction in price must raise total expenses on telephone devices in India.

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