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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, what is the gain in consumer surplus?

Question

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, what is the gain in consumer surplus?

Quizplus · Accepted Answer

To determine the gain in consumer surplus, we need to find the area between the world price line and the domestic demand curve (above the world price line and up to the quantity demanded at that price). This area is the gain in consumer surplus.
The quantity demanded at a price of $100 is 25 million units. So, the gain in consumer surplus is the area of the triangle with base 25 million and height $25 ($125 - $100). 
Therefore, the gain in consumer surplus is:
(0.5) x 25 million x $25 = $2.625 million.

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