Scenario 9-1
The before-trade domestic price of peaches in the United States is $40 per bushel.The world price of peaches is $52 per bushel.The U.S.is a price-taker in the market for peaches.
-Refer to Scenario 9-1.If trade in peaches is allowed,the
A)price paid by American consumers of peaches is unchanged relative to the no-trade situation.
B)total well-being of American producers of peaches is diminished relative to the no-trade situation.
C)total well-being of American consumers of peaches is enhanced relative to the no-trade situation.
D)total well-being of the United States is enhanced relative to the no-trade situation.

Question

Quizplus · Accepted Answer

When trade is allowed, the U.S. can sell peaches at the higher world price, benefiting producers. Although consumers pay more, the overall economic welfare of the U.S. increases due to gains from trade.

Scenario 9-1 The Before-Trade Domestic Price of Peaches in the United States