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A-Level Economics · World price above equilibrium (exports) diagram question

George Chantry, professional A-Level Economics tutor

Which area is the GAIN in producer surplus from trading at the world price?

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The diagram

World price above equilibrium (exports) diagram for A-Level Economics on a labelled grid, every point lettered

The answer

The area G E B F. PS goes from OGE to OFB; the slice added is GEBF — a higher price on the units they already made, plus the surplus on the extra units Q₁ to Q₃. Before and after again: PS before is OGE, PS after is OFB, and the difference is GEBF — the price rise on existing output plus the surplus on the new output that exporting makes worth producing. Part of that slice is transferred straight from domestic consumers, whose surplus falls to CFA.

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This is one of 6 questions on the world price above equilibrium (exports) diagram — every corner lettered, every wrong answer diagnosed.

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