Refer to the figure below to answer the following question.

Figure 7.2.4
-Refer to Figure 7.2.4. The graph shows the demand for shoes in Brazil, DB, the supply of shoes produced in Brazil, SB, and the market equilibrium in Brazil when it does not trade internationally. If the world price of a pair of shoes is $20 and Brazil opens up and trades internationally, producer surplus in Brazil ________ and consumer surplus in Brazil ________.
A)increases by area C + D; decreases by area C
B)increases by area C; decreases by area C and a deadweight loss equal to area D arises
C)increases by area D; decreases by area D
D)decreases by area C; increases by area C + D
E)decreases by area C + D; increases by area C

Question

Refer to the figure below to answer the following question.
  
Figure 7.2.4
-Refer to Figure 7.2.4. The graph shows the demand for shoes in Brazil, DB, the supply of shoes produced in Brazil, SB, and the market equilibrium in Brazil when it does not trade internationally. If the world price of a pair of shoes is $20 and Brazil opens up and trades internationally, producer surplus in Brazil ________ and consumer surplus in Brazil ________.
A)increases by area C + D; decreases by area C 
B)increases by area C; decreases by area C and a deadweight loss equal to area D arises 
C)increases by area D; decreases by area D 
D)decreases by area C; increases by area C + D 
E)decreases by area C + D; increases by area C

Quizplus · Accepted Answer

When Brazil opens up and trades internationally, the price of shoes in Brazil will fall to the world price of $20. This will lead to an increase in the quantity of shoes supplied in Brazil, from Qs to Qs', and a decrease in the quantity of shoes demanded in Brazil, from Qd to Qd'. The increase in supply will lead to an increase in producer surplus, by area C. The decrease in demand will lead to a decrease in consumer surplus, by area C. The net effect on producer surplus and consumer surplus will be an increase in producer surplus by area C and a decrease in consumer surplus by area C.

Refer to the Figure Below to Answer the Following Question