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The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs \$20, and the equilibrium quantity is 3 million T-shirts. One day, after reading Adam Smith's $The$ $Wealth$ $of$ $Nations$ while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of \$16. The number of T shirts consumed in Textilia rises to 4 million, while the number of T-shirts produced declines to 1 million.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 fromopening up trade. ($Hint$: Recall that the area of a triangle is ${1\over2} \times$ base $\times$ height.)

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Chapter 9

Application: International Trade

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The Macroeconomics of Open Economies

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04:15

Suppose that a market is d…

Okay. Question five Saying that the nation off text Alia does not allow imports of closing. So the ACLU Librium, without trade, we can see that now. The legal even price is twenty and equilibrium quantity is three million T shirts. Okay, so I won't three here and now the president decides to open the market to international trade. So now the price off the mom? Yeah. May the price of the T shirt falls to sixteen so we can see that arms. It's it's the The international price is lower than the domestic price. And when market price of teacher falls to sixteen dollars, the number of T shirt consumed raised to four million. So remember, on the number of teacher consumed is in demand for Keith Rices to four million Seoul. This point is for what? And number of dangers produced enquiries to one million. So the supply off domestic T shirt is one millions. So is this point Okay, So after we drove this graph, we can easily come Feli the consumer surplus and producer surplus from disgrace. So how use Concolor brute do as the pension war surplus? So before before in the trade, the consumer script with ease. The blue trying go here, which is the area here. But then now, after the trade, the consumer can buy more T shirt with a lower price, so the triangle becomes larger. So the difference of this small triangle and this big triangle here iss the shedded other shaded area going blue here. Okay, so how do we calculator the area? It is, um Green. Yes, the upper site year history wass Oh, the doubt downside is for times the height, the height, which is the difference off the price for dollars divided by two. So it is some fourteen. So this fourteen is the change of consumer surplus. Well, now we have to cut away the producer surplus. So if we ignore the bull part of their use green to produce the presence of surplus used to be the green triangle here. But now it becomes smaller. So the difference is the the green area here. So the producer surpluses be opera site is also three three plus down sight is one times the height is also for divided by two. So it's four times to which is eight. So we know that the producers surplus decrease because it used to be larger and now it's smaller. So the producer surplus is decreased by eight units, so it should be a minus. Sign here in consumer surplus increased five fourteen of hurting units. So the total surplus at the end increase because plus fourteen minus eight. So the total surplus in this economy increase when they opened for trade. So this six is just the difference between these two shed in area. So the benefit brought by international trade is the train go here so we can see that the area of this triangle is indeed like the bottom is three, three times four, divided by two is actually six.

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