When the price of grain the US is less than the world price and international trade is permitted , then , U.S will start exporting becuase of lower prices.
(a) When exports increases , supply for rhe domestic country decreases and shift to the left.
This will create excess demand or shortage which will increase the prices of the goods in the domestic country. And quantity exchanges in the U.S decreases
(b) From international trade , Producer of the U.S gains . As, the price of the product increases in the domestic market. And producer surplus will be greater than before
( c) Gain from trade is equal to the shaded area
As, world price is greater than domestic price , so , producer will be im surplus and gain from the international trade.
Get Answers For Free
Most questions answered within 1 hours.