Final answer:
The U.S. begins to export rice due to the higher world price of rice compared to the domestic price, thus reducing any domestic surplus and aligning domestic production with combined domestic and export demand.
Step-by-step explanation:
If the world price of rice is higher than the domestic price within the U.S., and the U.S. operates in a competitive market, it indicates that it would be more profitable for U.S. producers to sell their rice on the world market than domestically. As a result, the U.S. would begin to export rice. This happens because producers will look for the highest price they can get for their product, and if they can sell rice at a higher price internationally, they will do so. This will reduce the domestic supply and increase the quantities exported, until the domestic price adjusts and equals the world price.
Using the principles of supply and demand, this action would reduce a domestic surplus of rice, if one exists, because the rice that is not being sold in the domestic market will be sold abroad. This move capitalizes on the competitive advantage the U.S. has in producing rice at a cheaper cost than what it can be sold for on the world market. As illustrated in similar scenarios with Brazilian sugar, this increase in exports benefits U.S. producers by selling more rice at a higher price, similar to the benefits derived by Brazilian sugar producers who gained by exporting their surplus sugar. The end result is that the U.S. rice market will find an equilibrium where the quantity of rice produced matches the combined domestic demand and overseas export demand.