-Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P_W.If there is a policy change such that imports are prohibited,the price becomes P_N, U.S.consumers are worse off if imports are __________; specifically,their consumers' surplus changes by area __________.

Question

-Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P<sub>W</sub>.If there is a policy change such that imports are prohibited,the price becomes P<sub>N,</sub> U.S.consumers are worse off if imports are __________; specifically,their consumers' surplus changes by area __________. A) prohibited; P<sub>W</sub>ABD B) permitted; P<sub>W</sub>DE C) prohibited; P<sub>N</sub>BCP<sub>W</sub> D) permitted; P<sub>N</sub> BDP<sub>W</sub> E) none of the above

Quizplus · Accepted Answer

When imports are prohibited, the price increases from the world price to the domestic price without imports, reducing consumer surplus. The change in consumer surplus is represented by the area between the two prices, which includes the areas under the demand curve and above the supply curve, indicating a loss in consumer surplus.