The graph shows the demand for shoes in Brazil, DB, the supply of shoes produced

Question

The graph shows the demand for shoes in Brazil, DB, the supply of shoes produced in Brazil, S, and the market equilibrium in Brazil when it does not trade internationally Price (dollars per pair) If the world price of a pair of shoes is $20 and Brazil opens up and trades internationally, producer surplus in Brazil and consumer surplus in Brazil ( A. increases by area C; decreases by area C and a deadweight loss equal to World area D arises rice O B. decreases by area C; increases by area C + D ( C. remains unchanged; remains unchanged 0 D. increases by area D; decreases by area D 0 E, increases by area C + D; decreases by area C Quantity (millions of pairs per year)

Explanation / Answer

Answer

Option E

The country is an exporting country so the producer surplus increases and the consumer surplus decrease whereas the producer surplus is the area below price and above supply curve and the consumer, the surplus is the area above price and below the demand curve. the trade increases the price so the consumer surplus decreases and producer surplus increases.

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