Figure 9-5

-Refer to Figure 9-5.The horizontal line at the world price of wagons represents the
A) demand for wagons from the rest of the world.
B) supply of wagons from the rest of the world.
C) level of inefficiency in the domestic market caused by trade.
D) surplus in the domestic wagon market.

Question

Figure 9-5
 
-Refer to Figure 9-5.The horizontal line at the world price of wagons represents the
A) demand for wagons from the rest of the world. 
B) supply of wagons from the rest of the world. 
C) level of inefficiency in the domestic market caused by trade. 
D) surplus in the domestic wagon market.

Quizplus · Accepted Answer

The horizontal line at the world price of wagons represents the supply of wagons from the rest of the world. At the world price, domestic suppliers cannot compete and therefore consumers must turn to the global market to meet their demand for wagons. This is in contrast to a surplus in the domestic wagon market, which would be represented by a vertical line above the equilibrium price. The horizontal line does not represent demand or inefficiency in the domestic market.

Figure 9-5 -Refer to Figure 9-5.The Horizontal Line at the World Price