The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}
\hline\text { Ouantity }&&\text { Ouantity }\
(\text { Supplied }&&\text { Demanded }\
\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \
\hline 12 & \$ 5 & 2 \
\hline 10 & 4 & 4 \
\hline 7 & 3 & 7 \
\hline 4 & 2 & 11 \
\hline 1 & 1 & 16 \
\hline
\end{array}$ If the economy was opened to free trade and the world price of $1 prevailed, the price and quantity sold of this product would be

Question

Quizplus · Accepted Answer

In free trade, the country will export the product if the world price is higher than its domestic price and import the product if the world price is lower than its domestic price.

Here, the world price is $1, and the domestic suppliers are willing to supply the product if the price is $5 or higher. However, at the world price of $1, the domestic suppliers would not be willing to supply any, and the entire demand of 16 units would be met by imports.

Therefore, the price and quantity sold would be $1 and 16 units. The answer is (B).

The Accompanying Table Gives Domestic Supply and Demand Schedules for a Product