Consider the market for meekers in the imaginary economy of Meekertown. In the a

Question

Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of meekers is $39. Suppose that the world price of meekers is $20. Assume that Meekertown is too small to influence the world price of meekers once it enters the nternational market If Meekertown allows free trade, then it will meekers Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false. True False Statement Meekertownian consumers were worse off without free trade than they are with it. Meekertownian producers were better off without free trade than they are with it True or False: When a country is too small to affect the world price, allowing free trade will sometimes decrease total surplus in that country regardless of whether it imports or exports as a result of international trade. True False Grado lt Now Savo & Continuo

Explanation / Answer

1) Solution: If Meekertown allows free trade, the it will import meekers

Explanation: When the world price for a meeker is lesser than the domestic price, this means that the quantity of meekers supplied by domestic producers is lesser than the quantity demanded by domestic consumers at the world price. Thus in this case Meekertown will import meekers.

2) Solution: Meekertownian consumers are better off under free trade than they were before. TRUE

Meekertownian producers are worse off under free trade than they were before. FALSE

Explanation: When the world price (PW) of a good is lesser then the domestic price (PD), an economy will import the good when it opens for the free trade. In this scenario, domestic consumers are made better off, and domestic producers are made worse off.

3) Solution: False

Explanation: The increase in producer surplus is higher than the decrease in consumer surplus, thus total surplus will increase from free trade

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