To determine the change in producer surplus when an economy opens up to trade, we need to know the domestic supply and demand curves for pants and compare them with the world price.
If the world price for pants is $60, and the domestic price before opening up to trade was higher than this, then we can assume that there was a domestic producer surplus. Let's say that the domestic price before opening up to trade was $80, and the domestic supply and demand curves for pants are as follows:
Domestic supply curve: P = 20 + 0.5Q
Domestic demand curve: P = 100 - 0.5Q
where P is the price of pants in dollars and Q is the quantity of pants in thousands.
To find the equilibrium price and quantity before opening up to trade, we set the domestic supply equal to the domestic demand:
20 + 0.5Q = 100 - 0.5Q
1Q = 80
Q = 80,000
P = 20 + 0.5(80) = $60
So the equilibrium price and quantity of pants before opening up to trade were $60 and 80,000 pants, respectively.
When the economy opens up to trade, the domestic price will equal the world price of $60. At this price, the domestic supply will be:
P = 20 + 0.5Q
60 = 20 + 0.5Q
Q = 80,000
So the domestic producers will supply the same amount of pants as before, but at a lower price. The new producer surplus will be the area above the world price and below the domestic supply curve, which is:
(80 - 60) x 80,000 / 2 = $800,000
Therefore, the change in producer surplus when the economy opens up to trade is -$800,000, since the domestic producers will lose the surplus they were earning before.