Question

Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of meekers is $35. Suppose that the world price of meekers is $21. Assume that Meekertown is too small to influence the world price of meekers once it enters the international market.
If Meekertown allows free trade, then it will ________(import/export) meekers.

Answer 1

Answer:

If Meekertown allows free trade, then it will import meekers.

Explanation:

Meekertown would have no choice but to import meekers, since its import cost ($ 21) would be much less than its local production cost ($ 35). In other words, Meekertown would find it much more expensive to manufacture its own products than simply buying them in markets abroad. Therefore, importing would be much more beneficial to its economy.