1. The rest of the world has a comparative advantage in producing coal. China imports coal, Chinese coal users gain, and Chinese coal producers lose. The gains exceed the losses: China gains from international trade in coal.

Figure 1 shows the market for coal in China. The price before trade is P . With trade, the price falls to the world price, P . Consumers gain the area B, producers lose the area B, and the net gain from trade in coal is D.

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Figure 1 Solution to In the News