Unlocking Iceland's Potential: Becoming a Coat Exporter

What happens when Iceland transitions from being an isolated country to an exporter of coats?

When Iceland shifts from being an isolated country to becoming an exporter of coats, there are several implications for the coat market in Iceland. It is reasonable to infer that Iceland now has a comparative advantage in producing coats, which may be due to having a lower opportunity cost of production compared to other countries.

A country typically exports a commodity in which it has a comparative advantage, and this is the case for Iceland with coat production. Additionally, a country tends to export a commodity if the world price of the product is higher than the domestic price. Under free trade conditions, Iceland would continue to export coats until the domestic price aligns with the world price.

As a result of this transition, the producer surplus for producers of coats in Iceland increases. This is because if Iceland exports coats at the world price, producers will experience a boost in their surplus. On the other hand, any increase in the domestic price of coats could lead to a reduction in consumer surplus.