Using your plotted graph, determine how Mexico’s producer surplus and consumer surplus changed due to the subsidy compared to the free trade scenario.

Show Answers

Both producer surplus and consumer surplus declineProducer surplus falls while consumer surplus risesProducer surplus rises but consumer surplus fallsBoth producer surplus and consumer surplus increaseNo change in either producer or consumer surplus

Explanation

With the subsidy in place, Mexico’s producer surplus decreases while consumer surplus increases relative to free trade conditions.