Question

Economics Practice Problems

Question 1:

Question 2:

Assume that Puerto Rico represents a small country. The graph below represents 2 markets of goods in Puerto Rico. One market is the market of t-shirts and the other is the market of tuna. Graph 1 Graph 2 → - World Price --- -- --- -- -- - - - - -- World Price - - -- - - - 5 10 15 0 10 25 55 You know that Puerto Rico imports t-shirts and exports tuna. What is the producer surplus with free trade in the market of tuna in Puerto Rico? 50. O 112.5. 100. 625.

Answer 1

Q 1. The answer is 100 because the world price is 20 which means that the height of the smaller triangle is taken into conisderation. To find out the producer surplus we will have to find out the area of the triangle formed below the world price.

Area of triangle= 1/2* base* height= 1/2*20*10= 100

The answer is 100

Q 2. In graph 1 we can see that the world price is at 15 which is above the domestic equillibrium price. Hence, in order to find the producer surplus we will have to find the area of the triangle below the world price of 15. The height of the triangle is the world equillibrium price i.e. 15 and the base i.e. 15.

Area of triangle = 1/2*15*15 = 112.5

Ans 112.5