Aquilonia has decided to end its policy of not trading with the rest of the worl

Question

Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that Aquilonia’s new free-trade policy has a. Increased consumer surplus and producer surplus in the incense market b. Increased consumer surplus in the steel market and left producer surplus in the rug market unchanged c. Decreased consumer surplus in both the steel and rug markets d. Decreased consumer surplus in the steel market and increased total surplus in the incense market

Explanation / Answer

Answer Option D is correct: Aquilonia new trade policy resulted is that impact on the incense market and steel market. Rugs market after the policy has been remain constant. It has decreased consumer surplus in the steel market and increases total surplus in the incense market because more incense has been import from the rest of the world and exporting steel as price of incense has been increased and consumer surplus decreased.

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