Figure 9-1
The figure illustrates the market for coffee in Guatemala.
-Refer to Figure 9-1.With trade,total surplus in the Guatemalan coffee market amounts to

Question

Figure 9-1
The figure illustrates the market for coffee in Guatemala. 
-Refer to Figure 9-1.With trade,total surplus in the Guatemalan coffee market amounts to

Quizplus · Accepted Answer

The total surplus with trade is the sum of consumer surplus, producer surplus, and the gains from trade. In Figure 9-1, consumer surplus is represented by the area below the demand curve and above the world price line, which is $1 per pound, and producer surplus is represented by the area above the supply curve and below the world price line. The gains from trade are the additional surplus that accrues to both consumers and producers due to trade, and are represented by the triangle formed by the vertical distance between the world price and the domestic equilibrium price (i.e., $3 per pound) and the quantity traded (i.e., 1,000 pounds). Adding up these areas yields a total surplus of $1,870.

Figure 9-1 The Figure Illustrates the Market for Coffee in Guatemala