Question

Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of meekers is $24. Suppose that the world price of meekers is $23. Assume that Meekertown is too small to influence the world price of meekers once it enters the international market. 

If Meekertown allows free trade, then it will _______  meekers. 

Given current economic conditions in Meekertown complete the following table by indicating whether each of the statements is true or false. 

Statement 

Meekertownian consumers were better off without free trade than they are with it. 

Meekertownian producers were worse off without free trade than they are with it. 

True or False: When a country is too small to affect the world price, allowing free trade will have a non-negative effect on total surplus in that country, regardless of whether it imports or exports as a result of international trade. 

• True 

•  False

Answer 1

Since world price is below domestic price, it will IMPORT meekers.

False- consumers are better off with free trade

False- producers are worse off with free trade

True- free trade results in increase in total surplus.

Answer 2

import 

true 

true 

false

Answer 3

Import, false false, true

Answer 4

ANSWER :

Meektown will IMPORT meekers as international prices are lower than the domestic prices.

False. 

Meektownn consumers were NOT better off without free trade than they are with is since in the earlier situation they had to pay more for meekers.

False.

Meektownn consumers were NOT worse off without free trade than they are with is since in the earlier situation they could get more for meekers.

True

Free trade will create surplus.