Question

chapter 09: aplia homework
attempts
keep the highest / 3

1. 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 meekers is
$40. suppose that the world price of meekers is $39. 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 meeke
complete the following table by indicating whether each of the statements is true or false.
statement
true false
meekertownian consumers were worse off without free trade than they are with it.
meekertownian producers were better 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 never increase total surplus in that country, regardless of
whether it imports or exports as a result of international trade.
true
false

Explanation:

• For the statement about consumers: When a country opens to free trade, if it imports (domestic price > world price), consumers gain as they can buy at a lower price. So the statement "Meekertownian consumers were worse off without free trade than they are with it" is False.
• For the statement about producers: When a country opens to free trade, if it imports (domestic price > world price), producers lose as they face more competition. So the statement "Meekertownian producers were better off without free trade than they are with it" is True.
• For the overall trade and surplus: Free - trade can increase total surplus even for a small country. For example, if a country imports, the gain in consumer surplus (which is large as consumers are many) can more than offset the loss in producer surplus, increasing total surplus. So the statement "When a country is too small to affect the world price, allowing free trade will never increase total surplus in that country, regardless of whether it imports or exports as a result of international trade" is False.

Answer:

• "Meekertownian consumers were worse off without free trade than they are with it": False
• "Meekertownian producers were better off without free trade than they are with it": True
• "When a country is too small to affect the world price, allowing free trade will never increase total surplus in that country, regardless of whether it imports or exports as a result of international trade": False