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With completely free trade, the world supply curve is shown as: A
With completely free trade, the world supply curve is shown as:
A. a line parallel to and above the domestic supply curve.
B. a horizontal line at the domestic equilibrium price.
C. a line parallel to and below the domestic supply curve.
D. a horizontal line at the prevailing world price.
Expert Solution
D. a horizontal line at the prevailing world price .
The world price is detected at the intersection points of demand and supplies of the world economy. The world supply curve is a horizontal straight line because the supply in the global market exhibits perfectly elastic. Hence, this amount of supply follows an infinite level of quantity.
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