Question 26 (1 point) Reference: Ref 15-5 (Figure: Market for Watches in Countri

Question

Question 26 (1 point)

Reference: Ref 15-5

(Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that, as a result of free trade, producers of watches in Country A ____ and producers of watches in Country B ____.

Question 26 options:

will be the winners; will be the losers

will be the losers; will be the winners

The producers in both countries will be the winners.

The producers in both countries will end up losing.

will be the winners; will be the losers

will be the losers; will be the winners

The producers in both countries will be the winners.

The producers in both countries will end up losing.

Explanation / Answer

Without free trade, equilibrium price in country A is $100 per watch and at this price producers of watches in Country A are producing and selling 40 watches.

Without free trade, equilibrium price in country B is $200 per watch and at this price producers of watches in Country B are producing and selling 40 watches.

Now, both countries engage in free trade. After engaging in free trade they have to accept the world price which is $150 per watch.

At $150 per watch, producers in Country A will produce and sell 50 watches while producers in Country B will produce and sell 30 watches.

After free trade, producers in Country A are able to sell more watches than before while producers in Country B are selling fewer watches than before.

So, as a result of free trade, producers of watches in Country A will be winners and producers of watches in Country B will be losers.

Hence, the correct answer is option (1).

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