Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country
-Consider Figure 4.1.In the absence of trade, Mexico's producer surplus and consumer surplus respectively equal
A) $120 and $240.
B) $180 and $180.
C) $180 and $320.
D) $240 and $240.

Question

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country 
-Consider Figure 4.1.In the absence of trade, Mexico's producer surplus and consumer surplus respectively equal
A) $120 and $240. 
B) $180 and $180. 
C) $180 and $320. 
D) $240 and $240.

Quizplus · Accepted Answer

In the absence of trade, producer surplus is equal to the area above the supply curve and below the equilibrium price, which is (20-10)*8 = $80. Consumer surplus is equal to the area below the demand curve and above the equilibrium price, which is (20-15)*12 = $60. Therefore, total producer surplus is $80 and total consumer surplus is $60, giving a total welfare of $140.

Figure 41 Illustrates the Demand and Supply Schedules for Pocket Calculators