Question

Suppose that, with free trade, the world price of the product is $15. In comparison to a no-trade situation, with free trade, producer surplus: Price $46 $25 --- $5V i 15 30 45 Quantity increases to $75 increases to $150 decreases to $75 decreases to $150

Answer 1

The correct answer is 'Option C'.

The producer surplus is the area below the price line and above the supply curve. The world price is $15. So, the producer surplus is:

$Producer\: Surplus=\frac{1}{2}\times(15-5)\times(15-0)$.$Producer\: Surplus=\frac{1}{2}\times10\times15=75$

So, the producer surplus decreases to $75.