Graph 9-7

-According to Graph 9-7, producer surplus after trade would be:
A) $900
B) $1100
C) $1500
D) $2000

Question

Graph 9-7
 
-According to Graph 9-7, producer surplus after trade would be:
A) $900 
B) $1100 
C) $1500 
D) $2000

Quizplus · Accepted Answer

Producer surplus after trade is the area above the supply curve and below the world price. In this case, the world price is $1000 and the supply curve is a straight line from (0, 500) to (2000, 1500). The area above the supply curve and below the world price is a triangle with a base of 1000 and a height of 500. The area of a triangle is (1/2) * base * height, so the area of this triangle is (1/2) * 1000 * 500 = $250,000. However, we are only interested in the producer surplus after trade, which is the area above the supply curve and below the world price that is created by trade. In this case, the producer surplus after trade is the area of the triangle that is above the domestic price of $800. The base of this triangle is 1000 and the height is 200. The area of this triangle is (1/2) * 1000 * 200 = $100,000. Therefore, the producer surplus after trade is $100,000.

Graph 9-7 -According to Graph 9-7, Producer Surplus After Trade Would Be