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 then
A) imports will increase, the price will fall, and the quantity supplied will fall.
B) exports will increase, the price will be unchanged, and the quantity supplied will increase.
C) imports will increase, the price will decrease, and the supply curve will shift to the left.
D) the quantity demanded will decrease, the quantity supplied will decrease, and the price will decrease.

Question

Quizplus · Accepted Answer

When the world price is lower than the domestic equilibrium price, the country will import the good, leading to a decrease in the domestic price to the world price level. As a result, the quantity supplied domestically will fall because producers are less willing to supply at the lower price.

Consider a Market That Is Initially in Equilibrium with Quantity