If Freedonia changes its laws to allow international trade in software and the world price is higher than its domestic price,then it must be the case that
A)both consumer surplus and producer surplus increase.
B)consumer surplus increases and producer surplus decreases.
C)consumer surplus decreases and producer surplus increases.
D)both consumer surplus and producer surplus decrease.

Question

Quizplus · Accepted Answer

When international trade in software is allowed and the world price is higher than domestic price, Freedonia will become an importer of software. This means domestic producers will have to compete with foreign producers, resulting in a decrease in producer surplus. However, consumers will benefit from access to lower-priced software from foreign producers, resulting in an increase in consumer surplus. Therefore, the correct answer is C - consumer surplus decreases and producer surplus increases.

If Freedonia Changes Its Laws to Allow International Trade in Software