Refer to the figure below to answer the following questions. Figure 7.2.2
The figure shows the market for helicopters in Canada,where D is the domestic demand curve and S is the domestic supply curve.The world price is $36 million per helicopter.
-In Figure 7.2.2,if the economy moves from no trade to international trade,total surplus in Canada ________ by ________.
A)decreases;$2.56 billion
B)increases;$4.8 billion
C)decreases;$3.6 billion
D)decreases;$1.92 billion
E)increases;$1.92 billion

Question

Refer to the figure below to answer the following questions.  Figure 7.2.2
The figure shows the market for helicopters in Canada,where D is the domestic demand curve and S is the domestic supply curve.The world price is $36 million per helicopter.
-In Figure 7.2.2,if the economy moves from no trade to international trade,total surplus in Canada ________ by ________.
A)decreases;$2.56 billion 
B)increases;$4.8 billion 
C)decreases;$3.6 billion 
D)decreases;$1.92 billion 
E)increases;$1.92 billion

Quizplus · Accepted Answer

With no international trade, the equilibrium price and quantity are $40 million and 60 helicopters, respectively, resulting in a total surplus of $3.6 billion. With international trade, Canada will export 20 helicopters, and the domestic price will fall to the world price of $36 million, resulting in an increase in total surplus by $1.92 billion (consumer surplus increases by $0.72 billion, producer surplus increases by $1.2 billion). Therefore, the best choice is E.

Refer to the Figure Below to Answer the Following Questions