country z has a downward sloping domestic demand curve and an upward sloping domestic supply curve for…
country z has a downward sloping domestic demand curve and an upward sloping domestic supply curve for widgets. in the absence of trade, the domestic price of widgets is p₀. now the country engages in trade, and the price for widgets, pw, is below the domestic price, p₀. which of the following will occur? a country z will begin exporting widgets. b consumer surplus will decrease in country z. c domestic producer surplus will decrease in country z. d domestic production of widgets in country z will increase. e the price of widgets received by domestic producers will increase.
Answer
Brief Explanations:
When the world - price ($P_w$) of widgets is below the domestic price ($P_d$) in Country Z and the country engages in trade, domestic producers will face competition from cheaper imports. Since the world - price is lower, domestic consumers will demand more widgets at the lower price, and domestic producers will reduce production as it is less profitable at the lower world - price. Consumer surplus will increase because consumers can buy at a lower price. Producer surplus will decrease as producers receive a lower price for their goods. Domestic production will decrease as producers are less willing to produce at the lower world - price. And the price received by domestic producers will decrease.
Answer:
C. Domestic producer surplus will decrease in country Z.