Answer to Question #259615 in Microeconomics for Hini

Question

Free trade is the unrestricted purchase and sale of goods and services between countries, as exemplified in the European Economic Area, the North American Free Trade Agreement, and bilateral agreements between various countries. Suppose that the competitive equilibrium price for a good supplied domestically, pd is above the world price for the same good, pw, and that a ban is presently in effect that prevents imports of the good from entering the country. The domestic government is considering eliminating the ban. If it does so, how will domestic production and consumption change? Who will win and lose?

Answer 1

When consumption increases, GDP is also increased similarly. When current income increases, consumption tends to rise. The positive feedback triggers income and consumption.

In this case, the European economic Area will win with the consumption aspect.