Question

Winners and losers from free tradeConsider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of meekers is $23. Suppose that the world price of meekers is $24. 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 export meekers.Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false.
(1) Meekertownian consumers were better off without free trade than they are with it.
(2) Meekertownian producers were worse off without free trade than they are with it.
(3) When a country is too small to affect the world price, allowing free trade will have a non-negative effect on total surplus in that country, regardless of whether it imports or exports as a result of international trade.

Answer 1

Answer:

1.True

2.False

3.True

Explanation:

1) Meekertownian consumers were better off without free trade than they were before.

-True

As the world price is higher than in Meekertown, opening up to international trade will align goods prices to that of in the world market. Since world price is higher, meeker price will go up and consumers will have to pay more.

2) Meekertownian producers were worse off without free trade than they are with it.

-False

World meeker price is higher than in Meekertown domestic market. So opening up of the market to international trade will provide an opportunity to producers to export to the world market.

3) 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

Free trade creates a surplus in the market because of efficient production and market forces.

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