When a country allows trade and becomes an exporter of a good,
A)consumer surplus and producer surplus both increase.
B)consumer surplus and producer surplus both decrease.
C)consumer surplus increases and producer surplus decreases.
D)consumer surplus decreases and producer surplus increases.

Question

Quizplus · Accepted Answer

When a country allows trade and becomes an exporter of a good, the domestic price of the good that is being exported will increase while the world price will remain the same. This leads to a decrease in consumer surplus as consumers are paying a higher price for the same good. At the same time, producer surplus increases as producers can now sell their product at a higher price in the international market. Therefore, with an increase in producer surplus and a decrease in consumer surplus, the correct choice is D.

When a Country Allows Trade and Becomes an Exporter of a Good