(Figure: The Home Market) With free trade, the consumer surplus is _________ than in the case of no-trade domestic monopoly.

Question

Quizplus · Accepted Answer

With free trade, the domestic producer faces competition from imports, which lowers the domestic price to Pw. This creates a larger consumer surplus than in the case of no-trade domestic monopoly, where the domestic price is higher at Pm. Thus, the consumer surplus is higher with free trade.

(Figure: the Home Market) with Free Trade, the Consumer Surplus