if this country allows free trade in wagons, how much will consumers gain or lose? gain by $120 lose by $75…

if this country allows free trade in wagons, how much will consumers gain or lose? gain by $120 lose by $75 lose by $240 gain by $240

if this country allows free trade in wagons, how much will consumers gain or lose? gain by $120 lose by $75 lose by $240 gain by $240

Answer

Explanation:

Step1: Calculate consumer surplus before trade

Consumer surplus is the area above the price and below the demand curve. Before trade (price = $8), the consumer surplus is the area of the triangle: $\frac{1}{2}\times(18.5 - 8)\times70=\frac{1}{2}\times10.5\times70 = 367.5$

Step2: Calculate consumer surplus after trade

After trade (price = $5), the consumer surplus is the area of the triangle: $\frac{1}{2}\times(18.5 - 5)\times90=\frac{1}{2}\times13.5\times90=607.5$

Step3: Calculate the change in consumer surplus

Change = Consumer surplus after - Consumer surplus before. $607.5-367.5 = 240$

Answer:

Gain by $240