Question

A country opens up to trade and becomes an exporter of wheat. In the wheat market, domestic consumer surplus will ________, domestic producer surplus will ________, and total surplus will ________. decrease; increase; decrease increase; decrease; increase remain unchanged; increase; increase decrease; increase; increase

Answer 1

Answer:

The correct option is increase; decrease; increase

Explanation:

First, we will define the following terms:

• Consumer surplus
• Producer surplus
• Total surplus

Consumer surplus refers to the difference between the price that consumers pay and the price that they are willing to pay. Consumer surplus always increases as the price of a good falls and decreases as the price of a good rises. Therefore, in this scenario, as the country exports wheat, more wheat will be available in the market, leading to a fall in price, thereby leading to an increase in consumer surplus.

Producer surplus refers to the difference between how much a producer would be willing to accept for given quantity of a good against how much they can receive by selling the good at the market price. The difference or surplus amount is the benefit the producer receives for selling the good in the market. When prices rise, producer surplus increases, and when price falls, producer surplus decreases. There a decrease in price spurred by more wheat in the market will lead to a decrease in producer surplus.

Total surplus in a market refers to the measure of the total well-being of all participants in a market. Therefore, with more wheat in the market, there will be a drop in price, and consumers will be able to buy more, leading to more supply. This will lead to an increase in total surplus.