Which of the following statements about a tariff is true?
A) A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and increases total surplus.
B) A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and reduces total surplus.
C) A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus.
D) A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and increases total surplus.

Question

Quizplus · Accepted Answer

A tariff increases the price of imported goods, making domestically produced goods more competitive. This will increase producer surplus as domestic producers will benefit from the increased demand for their products. Consumer surplus will be decreased as a result of higher prices. The government's revenue will increase through the collection of the tariff. Total surplus, however, will be reduced since the decrease in consumer surplus will outweigh the increase in producer surplus and the revenue collected by the government.

Which of the Following Statements About a Tariff Is True