Suppose Iceland goes from being an isolated country to being an exporter of coats.As a result,
A)consumer surplus increases for consumers of coats in Iceland.
B)producer surplus increases for producers of coats in Iceland.
C)total surplus remains unchanged in the coat market in Iceland.
D)it is reasonable to infer that other countries have a comparative advantage over Iceland in coat production.

Question

Quizplus · Accepted Answer

If Iceland becomes an exporter of coats, it means that it can produce coats at a lower cost than before. This implies that the producer surplus of Icelandic coat producers will increase. However, it is not necessary that consumer surplus or total surplus in the coat market will increase or remain unchanged. It depends on the relative changes in the price and quantity of coats in the market, which are not specified in the question. Moreover, it is also not necessary to infer that other countries have a comparative advantage in coat production, as this depends on the specific factors that led to Iceland becoming an exporter of coats.

Suppose Iceland Goes from Being an Isolated Country to Being