2. Winners and losers from free trade ertown. In the absence of international tr

Question

2. Winners and losers from free trade ertown. In the absence of international trade, the domestic price of meekers is Consider the market for meekers in the imaginary economy of Meek $25. 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. True False Statement Meekertownian consumers are better off under free trade than they were before. Meekertownian producers were better off without free trade than they are witih E. True or False: When a country is too small to affect the world price, allowing free trade will sometimes decrease total surplus in that country, regardless of whether it imports or exports as a result of international trade. True False

Explanation / Answer

(1) If Meekertown allows free trade, it will Import meekers.

(Since domestic price > World price)

(2)

Consumers are better off with free trade - True (Since they can now buy at lower world price)

Producers were better off without free trade - True (Since they were selling at higher domestic price before trade)

(3) TRUE

For an importer (exporter), if gain in consumer surplus (producer surplus) is less than the loss in producer surplus (consumer surplus), total surplus will be lower with free trade.

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