1. Problems and Applications Q1

The world price of wine is below the price that would prevail in Canada in the absence of trade. Assume that Canadian imports of wine are a small part of total world wine production.

The following graph shows the Canadian market for wine under free trade.

Use the green triangle (triangle symbol) to shade consumer surplus when Canada is open to trade. Then use the purple triangle (diamond symbol) to shade producer surplus in this case.

Domestic Demand Domestic Supply Consumer Surplus Producer Surplus World Pride Price of Wine Quantity of WineDomestic Demand Domestic Supply World Price New Consumer Surplus World Price Price of Wine New Producer Surplus Quantity of Wine