Figure 9-23
The following diagram shows the domestic demand and domestic supply for a market.Assume that the world price in this market is $120 per unit.
-Refer to Figure 9-23.Producer surplus with free trade is
A)$200.
B)$450.
C)$630.
D)$1,080

Question

Figure 9-23
The following diagram shows the domestic demand and domestic supply for a market.Assume that the world price in this market is $120 per unit. 
-Refer to Figure 9-23.Producer surplus with free trade is
A)$200. 
B)$450. 
C)$630. 
D)$1,080

Quizplus · Accepted Answer

With free trade, the domestic price will become equal to the world price which is $120/unit. 
The quantity demanded will increase to 500 units and the quantity supplied will decrease to 400 units.
Producer surplus with free trade is the area above the supply curve and below the world price, up to the quantity supplied. 
Producer surplus = (1/2)*($120-$60)*400 = $12,000
Therefore, the producer surplus with free trade is $12,000 which is option C.

Figure 9-23 The Following Diagram Shows the Domestic Demand and Domestic Supply