South Africa willoranges and the volume of trade will equal

Use the following to answer questions 4-5: Figure: The Market for Oranges in South Afriea Price of oranges Domestic supply Pi demand o, cr Quantity of oranges 4. (Figure: The Market for Oranges in South Africa) Look at the figure The Market for Oranges in South Africa. In autarky, the price of oranges in South Africa is Pi. When the economy is opened to trade, the price falls to Pw. South Africa willoranges and the volume of trade will equal A) import; Cr-0r B) export; Cr-Qr C) import; D) export; Cr-0 5. (Figure: The Market for Oranges in South Africa) Look at the figure The Market for Oranges in South Africa. In autarky, the price of oranges in South Africa is Pi. When the economy is opened to trade, the price falls to Pw and consumer surplus will to area A) fall:; M B) fall; M+N C) rise; M+N+O D) rise; M+N+0+F

Solution

4) Option A is correct. The reason is that domestic price is higher than world price so after trade world price becomes domestic price at which CT is demanded while only QT is supplied domestically. Hence the difference (CT - QT) is imported.

5) Option D is correct. The reason is that domestic price is higher than world price so after trade world price becomes domestic price. Consumer surplus was previously restricted to area M which will now increase to M + N + O + P because now the price line is PW