Country X does not allow imports of clothing. In its equilibrium without trade, a sweater costs $30 and the equilibrium quantity is 5 million sweaters. One day, the president decides to open the market to international trade. The market price of a sweater falls to the world price of $20. The number of sweaters consumed in Country X rises to 6 million, while the number of sweaters produced declines to 4 million. a) Illustrate in a graph the situation just described. Your graph should show all the numbers. b) Calculate the change in consumer surplus, producer surplus, and total surplus that results from opening up trade.
Country X does not allow imports of clothing. In its equilibrium without trade, a sweater costs $30 and the equilibrium quantity is 5 million sweaters. One day, the president decides to open the market to international trade. The market price of a sweater falls to the world price of $20. The number of sweaters consumed in Country X rises to 6 million, while the number of sweaters produced declines to 4 million. a) Illustrate in a graph the situation just described. Your graph should show all the numbers. b) Calculate the change in consumer surplus, producer surplus, and total surplus that results from opening up trade.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Country X does not allow imports of clothing. In its equilibrium without trade, a
sweater costs $30 and the equilibrium quantity is 5 million sweaters. One day,
the president decides to open the market to international trade. The market
price of a sweater falls to the world price of $20. The number of sweaters
consumed in Country X rises to 6 million, while the number of sweaters
produced declines to 4 million.
a) Illustrate in a graph the situation just described. Your graph should show all
the numbers.
b) Calculate the change in consumer surplus, producer surplus, and total
surplus that results from opening up trade.
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