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Figure: The Market for MP3 Players
-(Figure: The Market for MP3 Players) Look at the figure The Market for MP3 Players. Assume that S_d represents the domestic supply curve and D_d represents the domestic demand curve. If the world price equals $100 and there is free trade, consumer surplus _____ and producer surplus _____ compared to autarky.

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Use the following to answer questions :
Figure: The Market for MP3 Players

-(Figure: The Market for MP3 Players) Look at the figure The Market for MP3 Players. Assume that S_d represents the domestic supply curve and D_d represents the domestic demand curve. If the world price equals $100 and there is free trade, consumer surplus _____ and producer surplus _____ compared to autarky.

Quizplus · Accepted Answer

When there is free trade at the world price of $100, the domestic consumers will pay less than they would under autarky (where the domestic price is higher than the world price due to trade restrictions). Therefore, consumer surplus increases. However, domestic producers will have to compete with foreign producers who can offer lower prices, which will lead to a decrease in producer surplus.

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