Question

The before-trade price of fish in Denmark is $10.00 per pound. The world price of fish is $6.00 per pound. Denmark is a price-taker in the fish market. If Denmark begins to allow trade in fish, its consumers of fish will become __________.a. better off, its producers of fish will become better off, and on balance the citizens of Denmark will become better off. b. worse off, its producers of fish will become better off, and on balance the citizens of Denmark will become worse off. c. worse off, its producers of fish will become better off, and on balance the citizens of Denmark will become worse off. d. better off, its producers of fish will become worse off, and on balance the citizens of Denmark will become better off.

Answer 1

Answer:

D) better off, its producers of fish will become worse off, and on balance the citizens of Denmark will become better off.

Explanation:

Since the world price of fish is lower than the domestic price of fish in Denmark, the consumers will be better off because they will pay a lower price for the same good which results in an increase in consumer surplus. On the other hand, domestic producers will be worse off because the world price is much lower than their own price, which will result in a decrease of the quantity supplied of domestic fish and a decrease in supplier surplus.

But the overall balance will be positive because the increase in consumer surplus should offset the decrease in supplier surplus, resulting in higher total economic surplus.