This graph demonstrates the domestic demand and supply for a good,as well as the world price for that good. According to the graph shown,if this economy were to open to trade,domestic producers would increase:

Question

This graph demonstrates the domestic demand and supply for a good,as well as the world price for that good.  According to the graph shown,if this economy were to open to trade,domestic producers would increase:

Quizplus · Accepted Answer

If this economy were to open to trade, the domestic price would increase to the world price level, resulting in an increase in domestic supply from Qd to Qs. This increase in supply would transfer surplus to producers of BC (the area between the new supply curve and the original demand curve), resulting in a gain to producer surplus. Consumers would suffer a loss of surplus (the area between the original supply curve and the new demand curve), but the gain to producer surplus would be greater, resulting in an overall increase in economic welfare. Therefore, choice C is the correct answer. Choices A and D are incorrect because they do not accurately represent the changes in producer and consumer surplus in the market after trade. Choice B is incorrect because it suggests that domestic producers would suffer a loss of surplus, which is not true in this scenario.

This Graph Demonstrates the Domestic Demand and Supply for a Good,as