When country A opens up to international trade and its domestic price is higher than the world price, domestic consumers are likely to be hurt by this change. Here's why:
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Lower Prices from Imports: When trade opens up, consumers in country A will have access to goods at the lower world price. This means they can buy the same goods for less than they were before, leading to increased consumer welfare overall. However, some consumers who were purchasing from domestic producers, which had set higher prices, might feel short-term negative effects as they adjust to the changes in the market.
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Domestic Producers: Domestic producers who were able to sell at higher prices before trade may also be negatively affected. With the influx of cheaper imports, these producers may struggle to compete, leading to potential losses in sales or profits, and possibly job losses in industries unable to compete with the lower-priced international competitors.
In summary, while consumers benefit from lower prices, domestic producers, especially in sectors unable to compete with imports, may suffer negative impacts, including reduced sales and potential layoffs. Ultimately, the overall economy may benefit from trade, but specific groups may face hardships as a result.
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