Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,
A) both producers and consumers will gain.
B) both producers and consumers will lose.
C) producers will gain and consumers will lose.
D) consumers will gain and producers will lose.

Question

Quizplus · Accepted Answer

If the world price is below the before-trade domestic price, it means that the domestic producers are selling the good at a higher price than what it costs in the international market. By allowing free trade, foreign producers can now compete and sell the good at a lower price, which will lead to a decrease in the domestic price. As a result, consumers will benefit from paying a lower price for the good, while producers will face lower revenues and potentially even losses. Therefore, consumers will gain, while producers will lose.

Suppose the World Price Is Below the Before-Trade Domestic Price