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41We can measure producer and consumer surplus by looking at the supply and demand graphical representation. Producer surplus is:

the area above the supply curve but below the equilibrium price.

the area below the demand curve but greater than the equilibrium price.

the area below the demand curve all the way down to the quantity axis.

the combined triangular area below the demand curve and above the supply curve.

42We can measure producer and consumer gains by looking at the supply and demand graphical representation. Total welfare in

the economy would be:

the area above the supply curve but below the equilibrium price.

the area below the demand curve but greater than the equilibrium price.

the area below the demand curve all the way down to the quantity axis.

the combined triangular area below the demand curve and above the supply curve.

43 How many units will a country import if S = 1P represents its home supply curve, D = 100 – 1P represents its home demand

curve, and the world price is $25?

25

50

75

100

perfectly elastic world supply curve.

perfectly inelastic world supply curve.

perfectly elastic world demand curve.

perfectly inelastic world demand curve.

45If there is free trade in a small economy, the nation will be able to import unlimited quantities of the product at the:

domestic price.

world price.

price measured in euros.

price determined after all tariffs are assessed.

46SCENARIO: PRODUCTION IN NORWAY

Suppose that Norway is a small country and currently produces 100,000 board feet of lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500 per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet and its consumption increases to 200,000 board feet.

(Scenario: Production in Norway) How many board feet of lumber does Norway now import?

250,000 board feet

200,000 board feet

150,000 board feet

100,000 board feet

47SCENARIO: PRODUCTION IN NORWAY

Suppose that Norway is a small country and currently produces 100,000 board feet of lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500 per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet and its consumption increases to 200,000 board feet.

(Scenario: Production in Norway) What is Norway's total gain in consumer surplus once it begins to trade?

$10,000

$15,000

$100,000  

$150,000

48SCENARIO: PRODUCTION IN NORWAY

Suppose that Norway is a small country and currently produces 100,000 board feet of lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500 per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet and its consumption increases to 200,000 board feet.

(Scenario: Production in Norway) What is Norway's total welfare gain once it begins to trade?

$5,000

$7,500

$15,000

$17,500

(Figure: The Import-Competing Industry) The producer surplus without trade in the figure is:

$255.

$510.  

$22.

$17.

(Figure: The Import-Competing Industry) If the demand for the product increases and the new equilibrium price is 30 and quantity is 50, what is the increase in producer surplus?

$625

$550

$255

$370

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