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.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.Which of the following statements is true?

Quizplus · Accepted Answer

When Lithasia engages in free trade, the world price of pens ($2) becomes the domestic price. At this price, consumers in Lithasia can now buy more pens than before (from Q1 to Q2) while producers can sell more pens (from Q1 to Q3). This means that both consumers and producers gain from trade, resulting in a net gain for the nation as a whole. Therefore, statement C is true. Statements A and B are false as neither the buyers nor the sellers lose or gain overall, and statement D is also false as the nation gains from free trade.

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