1. Winners and losers from free trade Consider the market for meekers in the ima
ID: 1158072 • Letter: 1
Question
1. Winners and losers from free trade Consider the market for meekers in the imaginary economy of Meekerton. In the absence of international trade, the domestic price of meekers is international market. If Meekertown allows free trade, then it will 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 better off without free trade than they are with it. Meekertownian producers were worse off without free trade than they are with it. O True or False: When a country is too small to affect the world price, allowing free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade. True O FalseExplanation / Answer
1. Import, as domestic price > world price.
2. False. Meekertown consumers are better with free trade because the world price is cheaper than domestic price, this will increase their consumer surplus.
3. True. Meerkertown producers were better off without free trade since they were getting higher prices. So their producer surplus was larger.
When the world price is $240 per ton, domestic demand will be 400 tons and domestic supply will be 100 tons, so imports will be 400-100=300 tons.
A tariff of $40 per ton, then the price will be $280 per ton. Domestic demand at this price will be 300 tons, domestic supply will be 200 tons so imports will be 300-200 = 100 tons.
Revenue for the government will be $40 * 100 tons= $4000.
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