Use the Following to Answer Questions

question 110

Multiple Choice

Use the following to answer questions :
Figure: The Market for Tea in Sri Lanka
-(Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri Lanka. In autarky, the price is P₁. When the economy is opened to trade, the price rises to P_W and consumer surplus _____ to _____.

• A)falls; F
• B)falls; F + G
• C)rises; F + G + H + I
• D)rises; G + H + I

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Definitions:

Exercise Price

The price at which the holder of an option can buy or sell the underlying security.

European Calls

Options contracts that allow the buyer to purchase a stock or asset at a specific price on or before the expiration date, but only on that date.

Expiration Date

The final date by which an option or other financial instrument must be exercised or becomes void.

Call Option

An agreement that grants the purchaser the flexibility, without the necessity, to acquire a stock, bond, commodity, or different asset at an agreed price during a definite timeframe.