Question

with the aid of a diagram, illustrate what happens to the equilibrium number of firms, prices, and average cost when one country opens up to trade (integrates its market) with another country. Explain whether consumers in the original country are better off, and specifically how.

Answer 1

of the trade age, which we know that the bases of the is comparative advantage & u means to the ability of a to produce specific goods opportunity costs than other According to diminishing law y When resources are usage mot Will fall. So the cost ratio ten and concave production possible Seen. Country B y of a country sie goods at a lower n other countries ing law we know - usage more output est ratio tends to teise. ton Possibility Curve N (commodity ) The y country A ANI Country A - - - AI B & commodity x. commodity-x ^ In the absence of trade, opportunity cwive AA, and exchange rcatio line PP tangent in Point C, which is conscimption and production eprélibrium of country A because I is tangent to PP line. In onternational mareket Production equidébrium foint F. Atter trade production equilibrium at point F and consumption equilibrium at point & E country export FD amount of Y and import DE amount of x from country B. In country B, country decide to produce & commodity, opportmity curve BB Production equilibrium Ę and consumption equilibrium E, country Bexports DiFi and imports DiE from country A." After trade country a Specialise in production of a so its production cost decreases.

of the trade age, which we know that the bases of the is comparative advantage & u means to the ability of a to produce specific goods opportunity costs than other According to diminishing law y When resources are usage mot Will fall. So the cost ratio ten and concave production possible Seen. Country B y of a country sie goods at a lower n other countries ing law we know - usage more output est ratio tends to teise. ton Possibility Curve N (commodity ) The y country A ANI Country A - - - AI B & commodity x. commodity-x ^ In the absence of trade, opportunity cwive AA, and exchange rcatio line PP tangent in Point C, which is conscimption and production eprélibrium of country A because I is tangent to PP line. In onternational mareket Production equidébrium foint F. Atter trade production equilibrium at point F and consumption equilibrium at point & E country export FD amount of Y and import DE amount of x from country B. In country B, country decide to produce & commodity, opportmity curve BB Production equilibrium Ę and consumption equilibrium E, country Bexports DiFi and imports DiE from country A." After trade country a Specialise in production of a so its production cost decreases.