2. Winners and losers from free trade Consider the imaginary economy of Meekerton and the market for meekies, a hypothetical good. Without international trade the domestic price of meekies is $25. Suppose that the world price of meekies is $28. Assume that if it were to enter the international market for meekies, Meekerton is too small to influence the world price. If Meekerton decides to participate in free trade, then it will export meekies. Given current economic conditions in Meekerton, complete the following table by indicating whether each of the statements is true or false. Statement Meekertonian producers were better off without free trade than they are with it. Meekertonian consumers are better off under free trade than they were before. True o False True False O O True or False: When a nation is too small to affect world prices, allowing free trade will sometimes decrease total surplus in that country, regardless of whether it imports or exports as a result of international trade.

The following table is domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. Quantity supplied (domestic) 12 10 Multiple Choice 7 4 4 units and 7 units. 4 units and 6 units. Refer to the above data. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers respectively would be: 1 unit and 15 units. Price 7 units and 0 units. $5 41 3 2 Quantity demanded (domestic) 7 11 16

2. Winners and losers from free trade Consider the imaginary economy of Meekerton and the market for meekles, a hypothetical good. Without international trade the domestic price of meekies is $21. Suppose that the world price of meekles is $33. Assume that if it were to enter the international market for meekies, Meekerton is too small to influence the world price. If Meekerton decides to participate in free trade, then it will Given current economic conditions in Meekerton, complete the following table by indicating whether each of the statements is true or false. False O meekies. Statement Meekertonian producers were better off without free trade than they are with it. Meekertonian consumers are better off under free trade than they were before. True O False True True or False: When a nation is too small to affect world prices, allowing free trade will have a non-negative effect on total surplus in that country, regardless of whether it imports or exports as a result of international…

Based on the information from the previous graph, absent international trade total surplus is $ The following graph shows the same domestic supply and demand curves for melons in Bangladesh. Now, suppose that the Bangladeshi government changes its stance on international trade, deciding to allow free trade in melons. The horizontal black line (Pw) represents the world price of melons at $500 per ton. Assume that Bangladesh's entry into the world market for melons has no effect on the world price and there are no transportation or transaction costs associated with international trade in melons. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. Use the green triangle (triangle symbol) to shade in the area representing consumer surplus, and then use the purple triangle (diamond-symbol) to shade in the area representing producer surplus. PRICE (Dollars per ton) 660 Domestic Demand Domestic Supply 620 580 540…