Figure 9-22
The following diagram shows the domestic demand and domestic supply in a market.In addition,assume that the world price in this market is $40 per unit.
-Refer to Figure 9-22.With free trade,consumer surplus is
A)$48,000 and producer surplus is $48,000.
B)$18,000 and producer surplus is $12,000.
C)$108,000 and producer surplus is $12,000.
D)$18,000 and producer surplus is $48,000.

Question

Figure 9-22
The following diagram shows the domestic demand and domestic supply in a market.In addition,assume that the world price in this market is $40 per unit. 
-Refer to Figure 9-22.With free trade,consumer surplus is
A)$48,000 and producer surplus is $48,000. 
B)$18,000 and producer surplus is $12,000. 
C)$108,000 and producer surplus is $12,000. 
D)$18,000 and producer surplus is $48,000.

Quizplus · Accepted Answer

With free trade, the price will equal the world price of $40 per unit. The quantity demanded will be 600 units (point A) and the quantity supplied will be 900 units (point B). The total consumer surplus will be the area between the demand curve and the price line, from point A to the vertical line at 600 units, which equals (1/2)(100)(600-400) = $10,000. The total producer surplus will be the area between the supply curve and the price line, from point B to the vertical line at 600 units, which equals (1/2)(40)(600-200) = $12,000. Therefore, the total surplus (consumer plus producer) will be $22,000. Since the market is in equilibrium, there is no deadweight loss. Thus, the total surplus is equal to the sum of consumer and producer surplus, which is $120,000.

Figure 9-22 The Following Diagram Shows the Domestic Demand and Domestic Supply