Consider a market that is initially in equilibrium with quantity demanded equal to quantity supplied at a price of 20. If the world price of the good is 10 and the country opens up to international trade then in this market then
A) imports will increase, the price will fall, and the quantity supplied will fall.
B) exports will increase, the price will be unchanged, and the quantity supplied will increase.
C) imports will increase, the price will decrease, and the supply curve will shift to the left.
D) the quantity demanded will decrease, the quantity supplied will decrease, and the price will decrease.
Question 2
The drought in the Midwest over the summer has decreased the supply of corn and, as a result, brought a sharp increase in the price of corn. (Source: The Economist, August 4, 2012) The increase in the price of corn
A) always increases consumer surplus.
B) always decreases consumer surplus.
C) does not affect consumer surplus because this change reflects only a movement along the demand curve.
D) increases consumer surplus if demand is elastic and decreases consumer surplus if demand is inelastic.
Othmer’s Equilibrium Still Schematic Diagram
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