Refer to the figure below to answer the following question. Figure 7.2.4 -Refer to Figure 7.2.4.The graph shows the demand for shoes in Brazil,D_B,the supply of shoes produced in Brazil,S_B,and the market equilibrium in Brazil when it does not trade internationally.If the world price of a pair of shoes is $20 and Brazil opens up and trades internationally,producer surplus in Brazil ________ and consumer surplus in Brazil ________. A)increases by area C + D;decreases by area C B)increases by area C;decreases by area C and a deadweight loss equal to area D arises C)increases by area D;decreases by area D D)decreases by area C;increases by area C + D E)decreases by area C + D;increases by area C

Question

Quizplus · Accepted Answer

When Brazil opens up to international trade, the world price of $20 becomes the domestic price in Brazil. At this price, domestic producers supply more shoes (S_B^*) than domestic consumers demand (D_B^*). The difference between these two quantities is exported. Producer surplus increases by area C + D, as domestic producers can now sell more shoes at a higher price. Consumer surplus decreases by area C, as domestic consumers must now pay a higher price for shoes.

Refer to the Figure Below to Answer the Following Question