Aquilonia has decided to end its policy of not trading with the rest of the world.When it ends its trade restrictions,it discovers that it is importing incense,exporting steel,and neither importing nor exporting rugs.We can conclude that producer surplus in Aquilonia is now

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Quizplus · Accepted Answer

When Aquilonia ends its trade restrictions, it starts to import incense which means the domestic supply of incense is not enough to meet the demand. As a result, the price of incense will go up in the domestic market, increasing the producer surplus of incense producers. On the other hand, Aquilonia is exporting steel, which means the domestic supply of steel is more than enough to meet the demand. Therefore, the price of steel will go down in the domestic market, decreasing the producer surplus of steel producers. Finally, Aquilonia is neither importing nor exporting rugs, which means the domestic supply and demand of rugs are already balanced, leaving the producer surplus in this market unchanged. So, the producer surplus in the steel market is now higher, lower in the incense market, and unchanged in the rug market.

Aquilonia Has Decided to End Its Policy of Not Trading