Asked by Courtney Gardner on Jul 30, 2024
Verified
Refer to Figure 9.5.2 above. At free trade, domestic producer surplus would be:
A) $2,500.
B) $50,000.
C) $1,250,000.
D) $2,500,000.
E) $20,000,000.
Producer Surplus
The difference between the amount producers are willing and able to sell a good for and the actual amount they do sell it for, representing their profit.
Free Trade
The unrestricted exchange of goods and services between countries without the imposition of tariffs, quotas, or other trade barriers.
Domestic
Relating to or occurring within a particular country; not foreign or international.
- Acquire insight into the theories of producer surplus, consumer surplus, and deadweight loss as they apply to trade.
Verified Answer
SS
Samantha SolisJul 30, 2024
Final Answer :
C
Explanation :
Producer surplus is the area above the supply curve but below the price level up to the quantity produced. At free trade, assuming the world price is lower than the domestic equilibrium price, domestic producers would produce up to the point where their supply curve meets the world price line. The area representing producer surplus would typically be a triangle or a trapezoid, depending on the exact shapes of the supply and demand curves and the price level. Without seeing Figure 9.5.2, the correct answer cannot be determined by the description alone. However, based on common outcomes in such scenarios, a middle value like $1,250,000 might be a plausible estimate for producer surplus, assuming it reflects a reasonable scale for the economy in question.
Learning Objectives
- Acquire insight into the theories of producer surplus, consumer surplus, and deadweight loss as they apply to trade.