ent Score: 57.6% Collapse Resources Hint estion 18 of 19> The country of Sabora

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ent Score: 57.6% Collapse Resources Hint estion 18 of 19> The country of Sabora currently hans all international trade. Sabora makes high-quality spears and is currently producing as many spears as the local population wishes to buy at $0 each. Other countries currenly produce and well speansat $125 each. The newly elected president of Sabora decides to allow international trade for the first time in Sabora's existence. They will begin trade next year. Saboran spear-makers will happily engage in trade. Assume there is free trade, and that Sabora will sell all the spears they make. Note that not all statements will be used. What will happen to the quantity and price of Sabora's spears next year? V Scroll Answer Bank

Explanation / Answer

As in the no trade situation or autarky the price of spear is less in Sabora $50 in comparison with other countries $125, when the free trade occurs, demand for Sabora spears will increase therefore the price for Sabora spears will also increase. Seeing the increased price producers will like to increase the quantity supplied also.

The free trade import quantity will be equal to the export quantity.

The free trade price will now lie somewhere between the $50-$125. As Sabora will export only when it gets more or equal to $50 and other countries will import only when they will get spears for less than $125.

So, in Sabora the price and the quantity of Sabora's spears increases next year after the free trade begins.

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