The Textilia nation does not allow imports of clothing. In this equilibrium without international trade, one shirt costs $ 20 dollars and the equilibrium amount is 3 million shirts. However, inspired by reading Adam Smith's classic economics book The Wealth of Nations, the president of Textilia decides to open the clothing market to the international market. Consequently, the market price of the shirt falls to the world price of $ 16 dollars, and the number of shirts consumed in Textilia increases to 4 million while the number of domestically produced shirts falls to 1 million.
a. Illustrate the situation described with the indicated numbers on a graph.
b. Calculate the change in consumer surplus, producer surplus, and total surplus resulting from the opening of the economy.
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The Textilia nation does not allow imports of clothing. In this equilibrium without international tr...
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