Suppose the domestic supply (Q^S_U.S.) and demand (Q^D_U.S)for bicycles in the United States are given by the following set of equations: $$\begin{array} { l } Q ^ { \mathrm { S } } \mathrm { U.S } . = 2 \mathrm { P } \ \mathrm { Q } _ { ^\mathrm { D } U . S } = 200 - 2 \mathrm { P } . \end{array}$$ Demand (Q^D) and supply (Q^S) in the Rest of the World are given by the equations: $$\begin{array} { l } Q ^ { S } = P \ Q ^ { D } = 160 - P . \end{array}$$ Quantities are measured in thousands and price in U.S. dollars. After the opening of free trade between the U.S. and the Rest of the World: A)neither the U.S.nor the Rest of the World gain from trade. B)both countries gain from trade, but the U.S.gains more than the Rest of the World. C)both countries gain from trade, but the Rest of the World gains more than the U.S. D)the net change in total surplus in the U.S.is zero but the Rest of the World gains.

Question

Quizplus · Accepted Answer

Opening trade allows countries to specialize in the production of goods for which they have a comparative advantage, leading to efficiency gains and increased total surplus for both countries. Given the equations, the U.S. and the Rest of the World would adjust their production and consumption according to their comparative advantages, leading to mutual benefits. However, the extent of the gain depends on the specific market dynamics and trade terms, which are not detailed here. Generally, trade tends to benefit both parties involved, but the distribution of these benefits can vary.

Suppose the Domestic Supply (QSU Demand (QD) and Supply (QS) in the Rest of the the United

Suppose the Domestic Supply (Q^S_{U Demand (Q^D) and Supply (Q^S) in the Rest of the the United}