With No Trade, the Equilibrium Price of Grapes Is $2

question 143

Multiple Choice

With no trade, the equilibrium price of grapes is $2 per pound in Macroland and $4 per pound in Econoland. Government leaders in Macroland are negotiating a free trade agreement with Econoland to increase trade between the two countries. Who among consumers and producers is likely to support and who is likely to oppose the free trade agreement?

• A) All consumers and grape producers in both countries are likely supporters because free trade typically provides a net gain in welfare for a country.
• B) All consumers in both countries would likely be supporters and all grape producers in both countries would be likely to oppose the agreement because of the direction of price changes that would result.
• C) Grape producers in Econoland and consumers in Macroland would likely be supporters, while grape producers in Macroland and consumers in Econoland would be likely to oppose the agreement because of the direction of price changes that would result.
• D) Consumers in Econoland and grape producers in Macroland would be likely supporters, while consumers in Macroland and grape producers in Econoland would be likely to oppose the agreement due to the direction of price changes that would result.

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