1. Problems and Applications Q1 The world price of wine is below the price that would prevail in Canada in the absence of trade. Assume that Canadian imports of wine are a small part of total world wine production. The following graph shows the Canadian market for wine under free trade. Use the green triangle (triangle symbol) to shade consumer surplus when Canada is open to trade. Then use the purple triangle (diamond symbol) to shade producer surplus in this case. Now, suppose that a period of exceptionally good weather doubles the grape harvest in Europe. In the following graph, show the effect of this change in weather conditions on the world price of wine by shifting the World Price line. Then use the green triangle (triangle symbol) to shade consumer surplus when Canada is open to trade at this new world price. Finally, use the purple triangle (diamond symbol) to shade producer surplus in this case. Because of this change in the world price, consumers , producers , and Canada as a whole is off.
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- The world price of wine is below the price that would prevail in Canada in the absence of trade. - Canada imports wine, and the Canadian market is open to trade. Show more…
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