The nation of Grapilia does not allow imports of exports of food. In its equilibrium without trade, a bushel of grapes costs $5, and the equilibrium quantity is 1 million bushels. One day, after reading Adam Smith’s The Wealth of Nations while on vacation, the president decides to open the food market to international trade. The market price of grapes rises to the world price of $8 per bushel. The number of grapes consumed in Grapilia falls to 300,000 bushels, while the number of grapes produced grows to 1.5 million bushels.

a. Illustrate the situation just described in a graph. Your graph should show all the numbers.

b. 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 ½ × base × height.)

Answer rating: 100% (QA)

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