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 methods is the best way to compensate the losers from opening Lithasia to international trade?

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 methods is the best way to compensate the losers from opening Lithasia to international trade?

Quizplus · Accepted Answer

When a country opens up to international trade, the domestic producers who are unable to compete with cheaper or better-quality imports are typically the losers. Taxing the buyers (who benefit from lower prices or better-quality goods due to international trade) and using the revenue to compensate the sellers (domestic producers who are negatively impacted) is a direct way to redistribute the gains from trade to support those who are adversely affected. This approach aims to mitigate the negative impacts on domestic producers while maintaining the benefits of trade for consumers.

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