Question

1. For any country after it allows free trade,

a. domestic quantity demanded is equal to domestic quantity supplied at the world price.

b. domestic quantity demanded is greater than domestic quantity supplied at the world price.

c. both producers and consumers in that country gain when domestic products are exported, but both groups lose when foreign products are imported.

d. the domestic price is equal to the world price.

2. In deciding whether a good is a public good, one must determine the

a. incomes of those who benefit from the good.

b. value of the external benefits that accrue to resource owners.

c. excludability of the good

d. all of the above are correct

Please answer and explain why they are correct.

Answer 1

1. Ans: d ) the domestic price is equal to the world price.

Explanation:

Due to free trade the domestic price of the product becomes lower as compared to its equilibrium price. If there is no tariff then the domestic price will be  equal to the world price. Free trade lowers the price due to efficient allocation of resources , comparative advantage , economies of scale, etc.

2. Ans: c ) excludability of the good

Explanation:

Non excludability and non rival in consumption are main features of public goods. It means one can not be deprived from the use of public goods . But in case of private goods these two  conditions are not fulfilled.