Suppose the price of wine in Berylia is higher than the world price of wine. If the market for wine is opened to international trade, how will the total surplus in the market get affected?


When the domestic market for wine is opened to international trade, consumers and producers trade at the world price, which causes a reduction in the domestic quantity supplied and an increase in the domestic quantity demanded. Berylia must import this difference between the quantity demanded and quantity supplied from abroad. Consumers of wine in Berylia would benefit from trade since consumer surplus rises, but producers of wine in Berylia are harmed by trade since producer surplus falls. As a result, ultimately, total surplus rises.

Economics

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