Aquilonia has decided to end its policy of not trading with the rest of the world.When it ends its trade restrictions,it discovers that it is importing cinnamon,exporting steel,and neither importing nor exporting rugs.What can we conclude about consumer surplus in Aquilonia
A)It is now higher for steel, lower for cinnamon, and the same for rugs.
B)It is now higher for cinnamon and steel, but not rugs.
C)It is now higher for cinnamon and rugs, but not steel.
D)It is now higher for cinnamon, lower for steel, and the same for rugs.

Question

Quizplus · Accepted Answer

If Aquilonia is importing cinnamon, it means the domestic supply of cinnamon was not enough to meet the demand of consumers, and they were willing to pay a higher price for imported cinnamon. Therefore, the consumer surplus for cinnamon is now higher.
Since Aquilonia is exporting steel, it means that the domestic price of steel is lower than the world price. Consumers in Aquilonia are benefiting from buying steel at a lower price, but producers are losing out on potential profit. Therefore, the consumer surplus for steel is lower.
There is no change in consumer surplus for rugs since there is no import or export of rugs, indicating that domestic production and consumption are enough to meet the demand at the same price as before.

Aquilonia Has Decided to End Its Policy of Not Trading