Figure 9-23
The following diagram shows the domestic demand and domestic supply for a market.Assume that the world price in this market is $120 per unit.
-Refer to Figure 9-23.With free trade,the domestic price and domestic quantity demanded are
A)$90 and 5.
B)$90 and 10.
C)$120 and 5.
D)$120 and 18.

Question

Figure 9-23
The following diagram shows the domestic demand and domestic supply for a market.Assume that the world price in this market is $120 per unit. 
-Refer to Figure 9-23.With free trade,the domestic price and domestic quantity demanded are
A)$90 and 5. 
B)$90 and 10. 
C)$120 and 5. 
D)$120 and 18.

Quizplus · Accepted Answer

With free trade, domestic producers will have to compete with foreign producers who can sell the product at a lower price of $120 per unit. As a result, the domestic price will also fall to $120 per unit. At this price, domestic quantity demanded will be 5 units, which is the point where the demand curve intersects the new world price line. Therefore, the correct answer is C.

Figure 9-23 The Following Diagram Shows the Domestic Demand and Domestic Supply