This graph demonstrates the domestic demand and supply for a good,as well as the world price for that good. According to the graph shown,if this economy were to open to trade,surplus would do all of the following except:

Question

This graph demonstrates the domestic demand and supply for a good,as well as the world price for that good.  According to the graph shown,if this economy were to open to trade,surplus would do all of the following except:

Quizplus · Accepted Answer

Opening to trade would lead to an increase in the quantity demanded of this good as the world price is lower than the domestic price. This would result in a larger surplus (area CEG) than without trade. However, there would be no deadweight loss (areas CEFG) as there is no government intervention in the market. The surplus would be transferred from the producer to the consumer as the domestic price decreases to the world price. Therefore, the correct answer is D, create deadweight loss of CEFG, which is not applicable in this case.

This Graph Demonstrates the Domestic Demand and Supply for a Good,as