Figure 7.3

Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.What is the area of domestic producer surplus after the imposition of a quota?
A)B
B)B + C
C)B + E + I + J + M
D)E + I + J + M

Question

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.What is the area of domestic producer surplus after the imposition of a quota?
A)B 
B)B + C 
C)B + E + I + J + M 
D)E + I + J + M

Quizplus · Accepted Answer

After the imposition of a quota, the area of domestic producer surplus is B, which represents the area between the supply curve and the quota line, up to the quantity of domestic production allowed by the quota. This is because the quota limits the amount of foreign peanuts that can be imported into Canada, reducing competition for domestic producers and allowing them to charge a higher price for their peanuts, resulting in an increase in producer surplus. Therefore, the correct answer is B.

Figure 7.3 Assume That the Canadian Government Limits the Import of Peanuts