The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4

-Refer to Figure 21.4. Assume that Ghana is the only cocoa exporter supplying cocoa in the world market at $6 per pound. If the U.S. enters into a free trade agreement (FTA) with Ghana, what would be its total cocoa imports?

Question

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4
 
-Refer to Figure 21.4. Assume that Ghana is the only cocoa exporter supplying cocoa in the world market at $6 per pound. If the U.S. enters into a free trade agreement (FTA) with Ghana, what would be its total cocoa imports?

Quizplus · Accepted Answer

The world market price of cocoa is given by the intersection of the demand and supply curves, which is $8 per pound in this case. If Ghana is the only cocoa exporter in the world market, it can supply cocoa to the U.S. at a lower price of $6 per pound, resulting in a gain from trade. Under the FTA, the U.S. can import cocoa from Ghana at the lower price of $6 per pound. Given the demand of 300 pounds of cocoa in the U.S. at the $8 world market price, the U.S. can import 200 pounds at the $6 price level, which is the quantity demanded at that lower price. Therefore, the answer is C) 200 pounds.

The Figure Below Shows the Demand (D) and Supply (S)