Textbook Guide Economics: International Trade, Economic Equilibrium, Comparative Advantage
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2. Winners and losers from free trade
Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $21. Suppose that the world price for a meeker is $22. Assume that Meekertown is too small to influence the world price for meekers once they enter 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 | True | False | |
---|---|---|---|
Meekertownian consumers are worse off under free trade than they were before. | |||
Meekertownian producers are worse off under free trade than they were before. |
True or False: When a country is too small to affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.
True
False