Question

assume when the economy of big is an autarky, the domestic price exceeds the world price. when the economy of big (not a price taker) moves from autarky to free trade, the world demand curve shifts to the because big consumers the market and the world supply curve moves a bit to the , because big shirt producers the world market.

Answer 1

When an economy moves from autarky to free trade, the domestic price decreases to align with the world price. This happens because the domestic market is exposed to international competition, leading to lower prices and increased supply from foreign producers. The world demand curve shifts to the right while the world supply curve moves slightly to the right.

Step-by-step explanation:

In this scenario, when an economy moves from autarky to free trade, the domestic price decreases because it now aligns with the lower world price. This occurs because the domestic market becomes exposed to international competition, which leads to increased supply from lower-cost foreign producers and lower prices.

For example, let's say that before free trade, the domestic price of a certain product in Big country is $10, while the world price is $8. When Big opens up to free trade, the domestic price will eventually decrease to $8 to align with the world price.

The shift in the world demand curve to the right occurs because now Big's consumers have access to a wider range of products at lower prices. The world supply curve moves slightly to the right because Big now becomes a producer that can export some of its products to the international market.