Figure 9-8.On the diagram below,Q represents the quantity of cars and P represents the price of cars.
-Refer to Figure 9-8.When the country for which the figure is drawn allows international trade in cars,
A)consumer surplus increases by the area B.
B)producer surplus decreases by the area B + D.
C)total surplus increases by the area D.
D)All of the above are correct.

Question

Figure 9-8.On the diagram below,Q represents the quantity of cars and P represents the price of cars. 
-Refer to Figure 9-8.When the country for which the figure is drawn allows international trade in cars,
A)consumer surplus increases by the area B. 
B)producer surplus decreases by the area B + D. 
C)total surplus increases by the area D. 
D)All of the above are correct.

Quizplus · Accepted Answer

When the country allows international trade in cars, the domestic price of cars will equalize with the world price, resulting in a decrease in domestic price from Pd to Pw, which benefits consumers by increasing consumer surplus (area D). At the same time, domestic producers will suffer a loss due to the decrease in price and quantity, resulting in a decrease in producer surplus (area B+D). However, the increase in consumer surplus is greater than the decrease in producer surplus, leading to a net increase in total surplus (area D). Therefore, the correct choice is C. Choice A and B are incorrect because consumer surplus and producer surplus do not change in isolation, but rather in relation to each other and in relation to total surplus.