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A-Level Economics · Free trade at the world price (imports) diagram question

Which area is PRODUCER SURPLUS once the market trades at the world price?

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The diagram

The answer

The triangle O F A. Above Sd, below PW, out to Q₂: triangle OFA — far smaller than OGE was. In an importing sector producers are the losers. Producers now receive only PW and supply only Q₂, so their surplus shrinks from OGE to OFA. The consumer gain is bigger than this producer loss, which is why there is a net welfare gain — but the loss is real and concentrated in one industry, and that is where the politics of trade comes from.

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This is one of 6 questions on the free trade at the world price (imports) diagram — every corner lettered, every wrong answer diagnosed.

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