What would be the geometric area of the consumer surplus


Problem

The consumer market for lobster in Canada during the summer period is made up of supply from domestic producers and imports (primarily New England states - U.S.). The graph below depicts a situation of temporary equilibrium in the Canadian lobster market (i.e., domestic consumption); equilibrium price and quantity are PE and QE respectively.

A. In the absence of outside market distortions (e.g., quota restrictions, tariffs) what would be the geometric area of the consumer surplus (i.e., what are the three letters which define the corner points of the consumer surplus on the graph)? Explain in words what this area represents.

B. In the absence of outside market distortions (e.g., quota restrictions, tariffs) what would be the geometric area of the producer surplus (i.e., what are the three letters which define the corner points of the producer surplus on the graph)? Explain in words what this area represents.

C. If the government of Canada imposed a quota restriction on U.S. imports (depicted by the dashed red line) what would be the theoretical impact on the domestic price for lobster? Briefly explain.

D. Would the new dis-equilibrium price be higher or lower? Briefly explain.

E. Would the new dis-equilibrium quantity be higher or lower? Briefly explain.

F. What would be the loss of consumer surplus (i.e., what four points define the corner points of the loss of consumer on the graph - hint, you need to add a point). Briefly explain what this area represents.

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