The Graph Shown Demonstrates the Domestic Demand and Supply for a Good

question 100

Multiple Choice

The graph shown demonstrates the domestic demand and supply for a good, as well as the world price for that good. If this economy were to open to trade, what would happen to surplus?

• A)Total surplus would increase overall.
• B)Producer surplus would decrease.
• C)Surplus would transfer from producers to consumers.
• D)Consumer surplus would increase.

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Definitions:

Income Effect

Refers to the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Substitution Effect

The change in quantity demanded as consumers switch to or from alternatives when the price changes.

Labor-Leisure Framework

A model in economics that illustrates the trade-off between labor, supplying work for income, and leisure, the time spent not working.

Equilibrium Wage

The wage rate at which the supply of labor matches the demand for labor, leading to an equilibrium in the labor market.