The following figure shows the demand and supply for a commodity in the domestic U.S.market as well as the global market.The commodity is imported from the rest of the world to the U.S.market.
In Figure 10-3,for the rest of the world:
A)the gain in producer surplus equals the gain in consumer surplus.
B)producer surplus increases while consumer surplus is unchanged.
C)the gain in consumer surplus is greater than the gain in producer surplus.
D)there are no changes in consumer or producer surplus after trade.

Question

The following figure shows the demand and supply for a commodity in the domestic U.S.market as well as the global market.The commodity is imported from the rest of the world to the U.S.market. 
In Figure 10-3,for the rest of the world:
A)the gain in producer surplus equals the gain in consumer surplus. 
B)producer surplus increases while consumer surplus is unchanged. 
C)the gain in consumer surplus is greater than the gain in producer surplus. 
D)there are no changes in consumer or producer surplus after trade.

Quizplus · Accepted Answer

In the global market, the supply curve shifts to the right, indicating an increase in production by rest of the world producers. As a result, the global price of the commodity decreases, leading to an increase in consumer surplus for the U.S. market. However, the U.S. producers face more competition from the rest of the world and have to lower their price to remain competitive. This leads to a decrease in producer surplus for U.S. producers. In the rest of the world, however, there is an increase in producer surplus due to increased production, while consumer surplus remains the same. Therefore, option B is correct as producer surplus increases while consumer surplus remains unchanged in the rest of the world market.

The Following Figure Shows the Demand and Supply for a Commodity