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BMW sells cars in China at a price two to three times higher than in the United States. Some people have purchased BMWs in the United States and exported them for resale in China. An article in the Wall Street Journal quoted a spokesperson for BMW as stating, “Vehicles exported to other countries undermine our pricing and volume positioning in the United States and other world-wide markets.” The company has also tried to get the U.S. government to stop buyers from reselling cars in China because the company argues that the practice is illegal.

a. Does BMW believe that demand for its cars is more or less elastic in China than in the United States? Briefly explain.

b. If U.S. buyers were free to export to China BMWs they purchased in the United States, would you expect the prices of the cars to be same in both countries? Briefly explain.