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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

When a nation opens itself to trade in a good and becomes an importer,

a. producer surplus decreases, but consumer surplus and total surplus both increase.

b. producer surplus decreases, consumer surplus increases, and so the impact on total surplus is ambiguous.

c. producer surplus and total surplus increase, but consumer surplus decreases.

d. producer surplus, consumer surplus, and total surplus all increase.

To determine
The impact of international trade converting a country to importer.

Explanation

The international trade is the exchange of goods and services between different nations in the world. The exchange will take place and the main two processes are the export and imports. The exports is the sale of domestic goods to the foreigners and imports is the vice versa. The consumer surplus can be explained as the difference between the highest price that the consumer is willing to pay and the actual price that the consumer pays. The difference between these two prices is known as the surplus to the consumer. The producer surplus is the difference between the minimum willing to accept price by the seller and the actual price that the seller receives for the commodity.

Option (a):

The international trade is the trade between the nations when the international trade makes a country an importer and it means the country has no comparative advantages in the production of the commodity and thus, the importing of the commodity benefits the country. Thus, when the country imports, the price of the commodity falls and the domestic price also falls which leads to fall in the producer surplus but the lower price will increase the consumer surplus largely. Since the total surplus is the summation of the consumer surplus and the producer surplus, the total surplus will also increase...

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