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 cinnamon,exporting steel,and neither importing nor exporting rugs.What are the effects
A)Domestic producers of cinnamon are now better off, and consumers of cinnamon are worse off; producers of steel are worse off, and consumers of steel are better off; both producers and consumers of rugs are unaffected.
B)Domestic producers of cinnamon are now worse off, and consumers of cinnamon are better off; producers of steel are better off, and consumers of steel are worse off; both producers and consumers of rugs are unaffected.
C)Domestic producers of cinnamon are now worse off, and consumers of cinnamon are better off; producers of steel are worse off, and consumers of steel are better off; both producers and consumers of rugs are unaffected.
D)Domestic producers of cinnamon, steel, and rugs are worse off and consumers of cinnamon, steel and rugs are better off.This is because trade always harms producers and helps consumers.

Question

Quizplus · Accepted Answer

When Aquilonia opens its trade, it starts importing cinnamon which would increase the supply of cinnamon in the domestic market, leading to lower prices, hence consumers of cinnamon are better off. However, this would lead to increased competition for the domestic producers of cinnamon, causing them to be worse off.

Similarly, due to the increased competition, the producers of steel would also be worse off since they would have to lower their prices to remain competitive in the international market. On the other hand, the consumers of steel are better off due to the lower prices.

Since there is neither import nor export of rugs, it would not affect either the producers or the consumers of rugs.

Aquilonia Has Decided to End Its Policy of Not Trading