A country opens up to trade and becomes an exporter of wheat. In the wheat market, consumer surplus will _______, producer surplus will _______, and total surplus will _______.

Question

Quizplus · Accepted Answer

When a country opens up to trade and becomes an exporter of wheat, the domestic price of wheat rises to the world price if it is higher. This results in a decrease in consumer surplus because consumers now pay more for wheat. Producer surplus increases because producers can sell their wheat at a higher price. Total surplus increases because the gains to producers from higher prices outweigh the losses to consumers, and the economy benefits from more efficient global allocation of resources.

A Country Opens Up to Trade and Becomes an Exporter