Figure 9-1
The figure illustrates the market for wool in Scotland.

-Refer to Figure 9-1.When trade in wool is allowed,producer surplus in Scotland

Question

Figure 9-1
The figure illustrates the market for wool in Scotland.
 
-Refer to Figure 9-1.When trade in wool is allowed,producer surplus in Scotland

Quizplus · Accepted Answer

When trade is allowed, the world price (Pw) becomes the market price in Scotland. The producer surplus in Scotland increases by the area B + D + G, as the producers can now sell their wool at a higher price than previously allowed in the closed economy. Therefore, the correct answer is B. Choice A is incorrect because it only considers the increase in producer surplus due to the higher price (B), but fails to account for the increased quantity produced (D) as a result of trade. Choice C is incorrect because it refers to the decrease in producer surplus in the closed economy compared to the open economy, which is not relevant to the question asked. Choice D is incorrect because it overlooks the fact that producers gain from trade in the open economy.

Figure 9-1 The Figure Illustrates the Market for Wool in Scotland