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,total surplus is
A)$30,000.
B)$66,000.
C)$96,000.
D)$120,000.

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,total surplus is
A)$30,000. 
B)$66,000. 
C)$96,000. 
D)$120,000.

Quizplus · Accepted Answer

With free trade, the domestic price will equal the world price of $40. At this price, domestic producers will supply 2,000 units and domestic consumers will demand 4,000 units. The total surplus in the market is the sum of consumer surplus and producer surplus, which is (1/2)(40-20)(4,000-0) + (1/2)(40-20)(2,000-0) = $120,000. Therefore, the best choice is D.

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