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-(Figure: The Market for iPhones) Use Figure: The Market for iPhones.Assume that P_A is the autarky price,P_W is the world price,and D and S represent domestic demand and supply,respectively.Consumer surplus in free trade equals the area:

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-(Figure: The Market for iPhones) Use Figure: The Market for iPhones.Assume that P_A is the autarky price,P_W is the world price,and D and S represent domestic demand and supply,respectively.Consumer surplus in free trade equals the area:

Quizplus · Accepted Answer

In free trade, the price paid by consumers would be the world price (P_W), which is lower than the autarky price (P_A). Therefore, consumer surplus would increase by the area -A, -B, and -C. However, there would be a loss of domestic producer surplus, which would decrease by the area -D. The total gain in consumer surplus plus the loss in producer surplus is the area A + B + C - D. Therefore, choice C is correct. Choices A and B are incorrect because they only consider the gain in consumer surplus without accounting for the loss in producer surplus. Choice D is incorrect because it does not include the gain in consumer surplus from free trade.

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