Suppose Iceland goes from being an isolated country to being an importer 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 Iceland has a comparative advantage over other countries in coat production.

Question

Quizplus · Accepted Answer

When Iceland becomes an importer of coats, it means that they can now purchase coats from other countries which may be produced at a lower cost or of better quality. This leads to an increase in consumer surplus because consumers now have access to a wider variety of coats at cheaper prices. Producer surplus, on the other hand, would decrease because there is now increased competition from foreign suppliers, and they may have to lower their prices to remain competitive. Total surplus in the coat market does not necessarily remain unchanged but may instead increase or decrease, depending on the specifics of the situation. It is not reasonable to infer that Iceland has a comparative advantage over other countries in coat production based solely on the fact that they have become an importer.

Suppose Iceland Goes from Being an Isolated Country to Being