(Figure: Market for Pants) According to the figure, if there is international trade in this market, and the world price of a pair of pants is $30, the value of the consumer surplus is:

Question

Quizplus · Accepted Answer

If the world price of a pair of pants is $30, it is below the domestic equilibrium price of $40. This will lead to an increase in imports, which will increase consumer surplus.

To calculate the value of the consumer surplus, we need to find the area below the demand curve and above the world price line, and then multiply it by the quantity demanded.

The quantity demanded at the world price of $30 is 80 million pairs of pants.

The area below the demand curve and above the world price line can be divided into two triangles and a rectangle, as shown in the figure.

The area of the first triangle is 0.5 x (50-30) x (120-80) = $800 million.

The area of the second triangle is 0.5 x (40-30) x (80-60) = $100 million.

The area of the rectangle is ($30-20) x 80 = $800 million.

Therefore, the total value of the consumer surplus is $1,700 million (=$800 million + $100 million + $800 million).

Thus, the correct answer is D) $1,800,000.

(Figure: Market for Pants) According to the Figure, If There