Question

Assume that a nation opens trade in consumer electronics and finds that the world price of these goods is lower than its domestic equilibrium price. The nation begins to import consumer electronics at the lower world price. As the nation begins to import consumer electronics, the domestic quantity supplied would ___, the domestic quantity demanded would ______, and the price would ____ .

		increase, decrease, decrease
		decrease, decrease, decrease
		decrease, increase, increase
		decrease, increase, decrease

Answer 1

The correct option is B. If the nation begin to import Consumer electronics at the lower world price, the imports will increase and the domestic producer suplus will decrease. This will result in the decrease in the supply of the domestically produced goods. Since the imports will be much cheaper for the comsumers they will shift their demand to the imported electronics and the demand for domestically produced electronics will decrease.

This will, in turn, reduce the prices of the domestically produced electronics.

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