Figure 9-24
The following diagram shows the domestic demand and supply in a market.Assume that the world price in this market is $20 per unit.
-Refer to Figure 9-24.With free trade,consumer surplus is
A)$400 and producer surplus is $100.
B)$400 and producer surplus is $400.
C)$900 and producer surplus is $100.
D)$900 and producer surplus is $400.

Question

Figure 9-24
The following diagram shows the domestic demand and supply in a market.Assume that the world price in this market is $20 per unit. 
-Refer to Figure 9-24.With free trade,consumer surplus is
A)$400 and producer surplus is $100. 
B)$400 and producer surplus is $400. 
C)$900 and producer surplus is $100. 
D)$900 and producer surplus is $400.

Quizplus · Accepted Answer

With free trade, the domestic price will equal the world price of $20 per unit. At this price, consumer surplus is the area above the price line and below the demand curve, which is (1/2)*(20-10)*40 = $400. Producer surplus is the area below the price line and above the supply curve, which is (1/2)*(20-10)*20 = $100. Therefore, total surplus is $500. Since domestic producers will supply 40 units at this price, they will receive a total revenue of 40*20 = $800. Subtracting the cost of production (20*20=$400) gives a producer surplus of $400. Therefore, the correct answer is C.

Figure 9-24 the Following Diagram Shows the Domestic Demand and Supply in Supply