Question (1) The nation of Textilia does not allow imports of clothing. In its equilibrium without...

Question (1)

The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20, and the equilibrium quantity is 3 million T-shirts. One day, after reading Adam Smith’s The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 4 million, while the number of T-shirts produced declines to 1 million.

Illustrate the situation just described in a graph. Your graph should show all the numbers.
Calculate the change in consumer surplus, producer surplus, and total surplus that results from opening up trade.

(Hint: Recall that the area of a triangle is 0.5 × base ×height.)

Expert Solution

Rahul Sunny answered 8 months ago

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