1) When trade in coffee is allowed, producer surplus in Guatemala a. increases by the area B + D. b. increasesbythearea…
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Question “1) When trade in coffee is allowed, producer surplus in Guatemala a. increases by the area B + D. b. increasesbythearea…”
1) When trade in coffee is allowed, producer surplus in
Guatemala
a. increases by the area B + D.
b. increasesbytheareaB+D+G.
c. decreases by the area C + F.
d. decreases by the area G.
2) When trade is allowed,
a. Guatemalan producers of coffee become better off and
Guatemalan consumers of coffee become worse off.
b. Guatemalan consumers of coffee become better off and
Guatemalan producers of coffee become worse off.
c. both Guatemalan producers and consumers of coffee become
better off. d. both Guatemalan producers and consumers of coffee
become worse off.
3) Relative to the no-trade situation, trade with the rest of
the world results in
a. Guatemalan consumers paying a higher price for coffee.
b. a decrease in producer surplus in Guatemala.
c. a decrease in total surplus in Guatemala.
d. All of the above are correct.
4) In the absence of trade, total surplus in the Guatemalan
coffee market amounts to
a. 750.
b. 1,100.
c. 1,514.
d. 1,650.
5) With trade, total surplus in the Guatemalan coffee market
amounts to
a. 1,250.
b. 1,468.
c. 1,870.
d. 1,980.
Answer
Answer 1
(1) The area of the region C+F is the initial equilibrium point, which is the intersection of domestic demand (and domestic supply), and the producer surplus equals the area.
The producer surplus equals the area of the region C+F+B+D+G when trade is at the world price
Therefore, when coffee trade is permitted, the area B+D+G increases producer surplus in Guatemala.
Answer: Option (B).
(2) Guatemalan coffee producers will be better off if trade is permitted. Guatemalan coffee consumers will suffer because their surplus will increase and fall.
Answer:
(3) Guatemalan coffee consumers pay a higher price than the rest of the world due to trade.
Answer:
(4) The area of the region A+B+D+C+F was considered the total surplus in the absence of trade.
Total surplus = (0.50) (140-30) (30-0)
Total surplus= (0.5) (110) (30)
Total surplus = 1650.
Answer:
(5) The area in the region of A+B+D+G+C+F was included in the trade surplus
total surplus = (0.5) (140-110)(18-0) + (0.5) (110-30) (40-0)
Total surplus = (0.5) (30) (18) + (0.5) (80) (40)
Total surplus = 1870
Answer: Choice (C).
Answer 2
Increase the area c+f
Conclusion
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