Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 9 - Part III - Application: International Trade - Quick Check Multiple Choice - Page 189: 3

Answer

a) producer surplus decreases, but consumer surplus and total surplus both increase

Work Step by Step

A country will import a good if the world price is less than the domestic price. This causes the price of that good to fall to the world price, meaning that consumers are better off (consumer surplus increases). However, producer surplus decreases because domestic sellers can no longer charge the higher domestic price. Overall, total surplus increases because the loss in producer surplus is less than the increase in consumer surplus.
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