When All Trade Is Prohibited in Good X, the Equilibrium

question 43

Multiple Choice

When all trade is prohibited in good X, the equilibrium price in the home country is P_X. After free trade is instituted, the domestic country begins to import good X from the rest of the world. As a result of free trade:

• A) the domestic price of good X will fall.
• B) the domestic price of good X will rise.
• C) the domestic price of good X will exceed the price in foreign countries.
• D) the domestic price of good X will be less than the price in foreign countries.
• E) the domestic producers will gain surplus at the expense of domestic consumers.

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