(Figure: Market for Pants) Suppose that the world price of a pair of pants is $30. According to the figure, the total domestic surplus in the free-trade equilibrium _____ the total domestic surplus in the no-international trade equilibrium by _____.

Question

(Figure: Market for Pants) Suppose that the world price of a pair of pants is $30. According to the figure, the total domestic surplus in the free-trade equilibrium _____ the total domestic surplus in the no-international trade equilibrium by _____.
(Figure: Market for Pants) Suppose that the world price of a pair of pants is $30. According to the figure, the total domestic surplus in the free-trade equilibrium _____ the total domestic surplus in the no-international trade equilibrium by _____. A) exceeds; $200,000 B) exceeds; $400,000 C) falls short of; $200,000 D) falls short of; $400,000

Quizplus · Accepted Answer

In the free-trade equilibrium, the domestic consumer surplus is the area above the world price and below the demand curve, which is $600,000. The domestic producer surplus is the area below the world price and above the supply curve, which is $400,000. Thus, the total domestic surplus in the free-trade equilibrium is $1,000,000.

In the no-international trade equilibrium, the domestic price of pants is $50. The domestic consumer surplus is the area above the equilibrium price and below the demand curve, which is $400,000. The domestic producer surplus is the area below the equilibrium price and above the supply curve, which is $200,000. Thus, the total domestic surplus in the no-international trade equilibrium is $600,000.

Therefore, the total domestic surplus in the free-trade equilibrium exceeds the total domestic surplus in the no-international trade equilibrium by $400,000.

(Figure: Market for Pants) Suppose That the World Price of a Pair