Question

refer to figure 34-1. the u.s. demand and supply for a good are shown. under a policy of free trade, where imports are permitted, the world price is \\(p_w\\). if there is a policy change such that imports are prohibited, the price becomes \\(p_n\\), consumers surplus equals ______ and producers surplus equals ______.

\\(p_n ad\\); \\(p_w bde\\)
\\(bcd\\); \\(p_n de\\)
\\(p_n ab\\); \\(p_n be\\)
\\(p_n ad\\); \\(bcd\\)

Explanation:

Identify consumer surplus under import prohibition

Under import prohibition, the domestic market reaches equilibrium at the autarky price \(P_N\) (point \(B\)). Consumer surplus is the area below the demand curve and above the price line \(P_N\), which is the triangle \(P_N AB\).

Identify producer surplus under import prohibition

Under import prohibition, the domestic market price is \(P_N\). Producer surplus is the area above the supply curve and below the price line \(P_N\), which is the area \(P_N BE\).

Match with options

The correct combination is consumers' surplus equals \(P_N AB\) and producers' surplus equals \(P_N BE\).

Answer:

• (A) \(P_N AD\); \(P_W BDE\)
• (B) \(BCD\); \(P_N DE\)
• (C) \(P_N AB\); \(P_N BE\) (Correct answer)
• (D) \(P_N AD\); \(BCD\)