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

The economy opens to free trade at the world price PW. Which distance shows IMPORTS?

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The diagram

The answer

The distance A B. At PW consumers want Q₃ (8) but domestic firms only supply Q₂ (2). Imports fill the excess demand: A to B, 6 units. Sequence it the way it earns marks: world supply is perfectly elastic at PW → domestic supply CONTRACTS along Sd to Q₂ (point A) and demand EXTENDS along Dd to Q₃ (point B) → that gap is excess demand → the world fills it. Imports = A to B, the horizontal gap at the world price.

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This is one of 6 questions on the free trade at the world price (imports) diagram — every corner lettered, every wrong answer diagnosed.

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