Consider a market that is initially in equilibrium with quantity demanded equal to quantity supplied at a price of $20. If the world price of the good is $10 and the country opens up to international trade, then in this market
A) imports will increase, price will fall, and quantity supplied will fall.
B) imports will increase, price will decrease, and the supply curve will shift to the left.
C) quantity demanded will decrease, quantity supplied will decrease, and price will decrease.
D) exports will increase, price will be unchanged, and quantity supplied will increase.

Question

Quizplus · Accepted Answer

When the country opens up to international trade and the world price is lower than the domestic equilibrium price, domestic consumers will prefer to buy the good at the cheaper world price. This leads to an increase in imports, a decrease in the domestic price to match the world price, and a decrease in the quantity supplied by domestic producers as they cannot compete with the lower world price.

Consider a Market That Is Initially in Equilibrium with Quantity