Question

If Paraguay exports pens, what happens to the quantity of pens consumed in Paraguay and why?

a.The quantity of pens consumed decreases because the market price increases.

b.The quantity of pens consumed increases because the market price decreases.

c.The quantity of pens consumed remains constant because the price is unchanged

d.The quantity of pens consumed increases because the market price increases.

Answer 1

At equilibrium, demand = supply. At this point, price is Pe and quantity traded is Qe.

If price is more than equilibrium price, quantity supplied is more than quantity demanded which result in export of pens which result in fall in consumer surplus because consumers would be purchasing less pens because of high price. Government will surely implement a policy to benefit domestic consumers such that price fall and approach equilibrium price which will raise quantity of pen consumed.

Option B is correct.