1. Suppose that in the world market for computers, the world price equals $500 per computer and the world quantity is 120 million. Note that the domestic price for computers equals $300 and the domestic equilibrium quantity is 10 million.Now the domestic country opens up to international trade.

(a) Will the domestic country choose to import or export computers? Explain.

(b) DRAW the domestic country's supply and demand curve and label the graph completely.

(c ) In this graph, label consumer surplus and producer surplus.

(d) In this graph, draw in the world price line. Label the new quantity produced domestically, the new quantity purchased domestically, and label the quantity that will be imported or exported. [Note: You do not need exact numbers for the quantities.]

(e ) Show the NEW consumer surplus and the NEW producer surplus.

(f) Describe the change in consumer surplus, the change in producer surplus, and the new total surplus. Use these answers to explain gains from trade.

2. This question is about the consequence of trade.

(a) Explain what economists mean when they say that there are winners and losers from trade. Who are the winners? Who are the losers?

(b) What are three arguments in favor of limiting trade? Explain each one.

(c ) What is the impact of trade on inequality?