The figure below shows the domestic supply and demand of a product in the United States.

-Refer to the figure above.Suppose the world price of this product is $8.After the United States engages in free trade in this product,________.

Question

The figure below shows the domestic supply and demand of a product in the United States.
 
-Refer to the figure above.Suppose the world price of this product is $8.After the United States engages in free trade in this product,________.

Quizplus · Accepted Answer

With the world price of $8, the United States will import the difference between domestic demand and domestic supply (700-400 = 300 units). This will lead to a decrease in domestic production and an increase in imports. As a result, producers will lose (due to decreased production) and consumers will win (due to lower prices). However, the overall economy will be better off due to the gains from trade and the increase in consumer surplus.

The Figure Below Shows the Domestic Supply and Demand of a Product