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... welfare of consumers. The difference between the price that producers would be prepared to sell their produce at and the price that they actually sell it at is the producer surplus. These two together are a measure of the welfare of the product. In a perfectly competitive market in a closed economy where the equilibrium market price and quantity is Q0 and P0, the consumer surplus is shown by the area ABC. The producer surplus is shown by the area CB0. The total level of welfare would be equal to the area AB0. If the country now takes part in world trade, citizens of that country can now buy goods and services at the world price of Pw . This is below the domestic equilibrium market price of P0. The horizontal world price line indicates that domestic producers have to accept the world price and cannot influence it due to their limited ...