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.With free trade, Mexico's producer surplus and consumer surplus respectively equal
A) $5 and $605.
B) $25 and $380.
C) $45 and $250.
D) $85 and $195.

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.With free trade, Mexico's producer surplus and consumer surplus respectively equal
A) $5 and $605. 
B) $25 and $380. 
C) $45 and $250. 
D) $85 and $195.

Quizplus · Accepted Answer

With free trade, Mexico's consumer surplus is the area between the world price and the domestic demand curve, above the quantity traded. In this case, CS = (13-7)*(50/2) = $150. Mexico's producer surplus is the area between the world price and the domestic supply curve, below the quantity traded. In this case, PS = (7-2)*(50/2) = $125. Therefore, the total surplus = $150 + $125 = $275.

Figure 41 Illustrates the Demand and Supply Schedules for Pocket Calculators