Suppose that Swaziland decides to open trade with the rest of the world. If the world price of sugar is higher than Swaziland's domestic price, what is the likely effect on Swaziland's sugar market?

• A. Swaziland will restrict sugar production to avoid trade.
• B. Swaziland will neither export nor import sugar, and the market will remain unchanged.
• C. Swaziland will import sugar, and domestic consumers will benefit.
• D. Swaziland will export sugar, and domestic producers will benefit.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of comparative advantage and how opening trade affects domestic markets. When a country opens trade, it can buy or sell goods at the world price, which may differ from its domestic price.
2. Step 2: Compare the world price of sugar to Swaziland's domestic price. Since the world price is higher than the domestic price, sugar is more valuable on the international market than at home.
3. Step 3: Analyze the incentives for producers and consumers. A higher world price encourages domestic producers to increase production to sell sugar abroad, as they can get a better price than domestically.
4. Step 4: Determine the direction of trade. Because the world price is higher, Swaziland will export sugar rather than import it, as exporting yields higher revenue for producers.
5. Step 5: Consider the effects on domestic welfare. Domestic producers benefit from higher prices and increased sales, while consumers may face higher prices and reduced domestic supply, so producers gain overall.