A country moves from a situation of no trade to a situation where a good is exported.In the exporting country the price of the good ________,and producer surplus ________.

Question

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When a country moves from a situation of no trade to exporting a good, the domestic price of the good increases. This is because the country is now supplying more of the good than before and the increased supply puts downward pressure on prices. However, since the country is exporting the good, it is able to sell the good at a higher price on the world market, which drives up the domestic price. As for producer surplus, it increases as the higher price increases the profit that producers receive for selling the good.

A Country Moves from a Situation of No Trade to a Situation