A country that produces paper is a price taker in the world paper market. The world price is pw. Suppose that the industry is not polluting.

The domestic supply?curve, S, is upward?sloping, but the home country can import as much as it wants at the world?price, pw. In the?free-trade equilibrium.?, e1?, the equilibrium quantity is Q1 and the equilibrium price is the world?price, pw. With a ban on?imports, the equilibrium is e2?, quantity falls to Q2?, and price rises to p2.

How do we know that winners from trade can compensate losers and still have enough left over to benefit?themselves?

The winners from trade can compensate the losers and still have enough left over to benefit themselves?because, with free?trade,

A.

consumer surplus and producer surplus both increase.

B.

consumer surplus increases by more than producer surplus decreases.

C.

producer surplus increases by more than consumer surplus decreases.

D.

consumer surplus increases by more than deadweight loss increases.

E.

producer surplus increases by more than deadweight loss increases.

p. $ per ton D PW D Q. Tons per year