Figure 9.5.1
-Refer to Figure 9.5.1 above. If free trade in sugar is replaced by a $50 tariff in sugar, consumer surplus will:
A) fall by $50.
B) fall by $26,250.
C) fall by $22,500.
D) rise by $50.
E) rise by $17,500.

Question

Figure 9.5.1
-Refer to Figure 9.5.1 above. If free trade in sugar is replaced by a $50 tariff in sugar, consumer surplus will:
A) fall by $50. 
B) fall by $26,250. 
C) fall by $22,500. 
D) rise by $50. 
E) rise by $17,500.

Quizplus · Accepted Answer

With a $50 tariff in sugar, the price that consumers pay for sugar will increase by $50, reducing consumer surplus by $22,500. This is calculated by finding the area of the triangle formed by the new price ($250) on the y-axis, the original price ($200) on the y-axis, and the original quantity (500) on the x-axis: 
($250 - $200)/2 x 500 = $25 x 500 = $12,500. 
Since both sides of the triangle are affected, we multiply this by 2 to get the total reduction in consumer surplus: $12,500 x 2 = $25,000. However, since the tariff revenue of $2,500 will partially offset this loss, the net reduction in consumer surplus is $22,500 ($25,000 - $2,500). Therefore, choice C is correct.

Figure 9.5.1 -Refer to Figure 9.5.1 Above. If Free Trade in Sugar