With the opening of the Textilian market to international trade, the price of a T-shirt in the nation falls to the world price of $16. This occurs because now the Textilian consumers have access to a wider range of T-shirts at a lower price from the global market.
As a result of this price decrease, the quantity of T-shirts consumed in Textilia rises to 6 million. This increase in consumption is driven by the fact that consumers can now purchase more T-shirts at a lower price, leading to higher demand.
On the other hand, the number of T-shirts produced in Textilia declines to 3 million. This decrease in domestic production occurs because some domestic producers may find it difficult to compete with the lower-priced imported T-shirts. As a result, they may either reduce their production or exit the market altogether.
Overall, the opening of the Textilian market to international trade results in an increase in T-shirt consumption and a decrease in domestic T-shirt production. The market price of the T-shirt adjusts to the world price, leading to a more efficient allocation of resources and potentially benefiting consumers by offering them a wider variety of products at lower prices. However, it may negatively impact domestic producers who cannot compete with the lower-priced imports.
The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20, and the equilibrium quantity is 5 million T-shirts. After reading Adam Smith's The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 6 million, while the number of T-shirts produced declines to 3 million.
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