Question

Using the graph below, answer the following questions about hammers. Price Domestic Supply $22 14- World Price 10 Domest Demand 50 90 -135-Quantity a. Once trade is allowed does this country import or export b. How much do they import or export c. Does this trade benefit domestic producers or consun Overall, is trade good for this country? Explain how we measure this

Answer 1

(a) Once trade is allowed this country will import because the world price is less than Domestic price i.e $4 which could benefit the people of the country (b) Import at price = $10 = Domestic delta D at price = $10 - Domestic supply at price = $10 = 135 - 50 = Import = 85 \r\n (c) of course the consumer (Domestic) will get the benefit because the product will get lesser price as compared without trade. The consumer surplus will increased (d) Overall the trade is good for the country by the gain in the total surplus in the economy If the total surplus is increased by the previous one then it is good here the area has been increased by the A + B.