Suppose that the U. S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,

a.

U. S. citizens benefit from lower software prices, increasing consumer surplus in the market.

b.

U. S. producers benefit from higher software prices, increasing producer surplus in the market.

c.

U. S. software producers are harmed, since the price that these producers receive will decline as the price falls to the world price.

d.

total surplus in this market will remain unchanged, as the decline in benefits received by software producers exactly balances the increase in benefits received by US software consumers.

Question

Cristina Morales

Business

22 February, 14:56

Suppose that the U. S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,

a.

U. S. citizens benefit from lower software prices, increasing consumer surplus in the market.

b.

U. S. producers benefit from higher software prices, increasing producer surplus in the market.

c.

U. S. software producers are harmed, since the price that these producers receive will decline as the price falls to the world price.

d.

total surplus in this market will remain unchanged, as the decline in benefits received by software producers exactly balances the increase in benefits received by US software consumers.

+1

Answers (1)

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Sparky · Answer 1

The correct answer is option b.

Explanation:

Comparative advantage refers to the situation where an individual, firm or nation can produce a good or service at a relatively lower opportunity cost.

If the US has a comparative advantage in the production of spreadsheet software it means that the US can produce it at a lower opportunity cost.

The US specializes in the production of spreadsheet software, so with the opening up of trade, it will be benefited from a higher price. Since the other countries can produce at a higher opportunity cost, the world price must be higher.

As a result, the producer surplus in the US market will increase.