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A-Level Economics · Free trade at the world price (imports) diagram question

Before any trade, this market settles where domestic supply crosses domestic demand. Which point is that no-trade (autarky) equilibrium?

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The diagram

The answer

Point E. Sd crosses Dd at E — price P₁ (£5), quantity Q₁ (5). That is the price before the country opens to trade. Autarky means no foreign trade, so the only price that clears the market is where Sd crosses Dd — point E, £5 and 5 units. Everything else on this diagram happens after the world price arrives.

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