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When a nation opens itself to trade in a good and becomes an importer, a
When a nation opens itself to trade in a good and becomes an importer,
a. producer surplus decreases, but consumer surplus and total surplus both increase.
b. producer surplus decreases, consumer surplus increases, and so the impact on total surplus is ambiguous.
c. producer surplus and total surplus increase, but consumer surplus decreases.
d. producer surplus, consumer surplus, and total surplus all increase.
Expert Solution
Option a. (producer surplus decreases, but consumer surplus and total surplus both increase) is correct.
This is a correct option because when a nation becomes an importer, the domestic prices for the product fall. The fall in the domestic price level leads to fall in the producer surplus and increase the consumer surplus. The total surplus in the economy also increases.
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