Question

When Australia has a closed economy for flowers, a bouquet of flowers sells for $50. Assuming Australia does have the comparative advantage (CA) in the production of flowers, opening up the flowers market in Australia to international trade will result in Australian consumers being better off as the price of flowers will fall to below $50. Correct this statement and provide for a brief example proving your case.

In answering this question, I will need to state that with a comparative Advantage, international trade will increase prices for domestic consumers-explain with then explain this with a brief answer

Answer 1

In a closed economy, Australia was not exporting any flowers to international market. The bouquet of flowers sell for $50. As Australia have the comparative advantage in the production of flowers, opening up the flowers market in Australia to international trade will result in scarcity of flowers in Australia for domestic consumers. As a result of this scarcity , the price of flowers would increase above $50 in the Australian market. Thus the domestic consumers would be at loss.

Thus we can say, that with a comparative advantage, there will be a huge demand of products in the international market. As the country starts exporting, there will be a scarcity of goods in the domestic market and thus international trade results in increased prices for domestic consumers.