An economy moves from autarky to free international trade.In the import sector,consumer surplus _____,producer surplus _____,and the economy as a whole _____.

Question

Quizplus · Accepted Answer

With free international trade, the consumers can access foreign products at a lower price than what they would pay in autarky. This leads to an increase in consumer surplus. However, domestic producers face competition from foreign producers, which reduces the price of the domestic product and leads to a decrease in producer surplus. The overall gains from trade are the sum of consumer surplus and producer surplus, which increases in this case. Therefore, the correct option is B.

An Economy Moves from Autarky to Free International Trade