The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2.

-Refer to the figure above.If Lithasia opens up to free trade,then which of the following statements is true?

Question

The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2.
 
-Refer to the figure above.If Lithasia opens up to free trade,then which of the following statements is true?

Quizplus · Accepted Answer

When Lithasia opens up to free trade, the world price of pens will become the domestic price in Lithasia. As the world price of pens is $2, which is higher than the domestic equilibrium price of $1, domestic producers in Lithasia will start importing pens from the world market. Consequently, the domestic production of pens in Lithasia will decrease and Lithasia will begin to import pens.

The Following Figure Shows the Demand Curve, D, and Supply