Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $21. Suppose that the world price for a meeker is $22. Assume that Meekertown is too small to influence the world price for meekers once they enter the international market.
If Meekertown allows free trade, then it will meekers.
Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false.
Statement
A. True
B. False
Meekertownian consumers are worse off under free trade than they were before. Meekertownian producers are worse off under free trade than they were before.
True or False: When a country is too small to affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.
A. True
B. False

The basic laws of economics (demand and supply) states that prices and supply are usually related positively. That is, supply will always go in the direction of price. The higher the price of the good the higher the supply, the lower the price the lower the supply.

Given that the price is higher in the international market, suppliers will export more of their product into the global market as they get more value there than in the docmestic market. Recall that the domestic price is $21 whilst the world price is $22.

B) Meekertownian consumers are worse off under free trade than they were before.

The answer is True.

In the short run, Meekertown will be worse off under free trade as consumers will find little or no meekers to purchase. The situation will force local prices to increase to match international prices. Only then will aggregate supply locally return to normalcy.

C) Meekertownian producers are worse off under free trade than they were before

Answer is False.

Regardless of how we look at it, the producers will be better off. If they sell internationally, they make more profit than if they sold locally. When low supply of meekers locally forces prices upwards, producers will still be better off. The worst case scenario is that prices will match global prices. If that happens, suppliers will be content to sell locally at international prices. Hence they'd still be better off than when the economy was closed.

D) When a country is too small to affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.

Answer is False

Exporting as we have seen in the case of meeker town if very beneficial to their total surplus. However, when the tide is turned, and imports starts to flow into the country, the likelihood that it will upset the trade surplus negatively is very high especially if the other countries can produce at a cheaper rate that the local producers due to a higher comparative advantage. The end result is that, the local producers will be forced out of business.