Free Trade Raises Domestic Price, Hurting Consumers

Steps:

• Autarky price P_d sets initial consumer surplus (area above P_d to demand curve) and producer surplus (below P_d to supply curve).
• Free trade sets price at P_w > P_d, so quantity demanded falls as consumers pay more.
• Consumer surplus loss is the area between P_d and P_w under the demand curve, labeled X+Y.
• Producer surplus gain is the area between P_d and P_w above the supply curve, labeled Y+Z.

Why B is correct:

• Consumer surplus decreases by X+Y, the rectangular and triangular losses from higher price reducing quantity and willingness to pay.

Why the others are wrong:

• A: Consumers lose surplus at higher price, do not gain.
• C: Producers gain Y+Z, not Z+Y (mislabels gain areas).
• D: Producers gain from higher price, do not lose.

Final answer: B