The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is P W . Assume that all cotton towels are identical.
FIGURE 34- 3
-Refer to Figure 34- 3. If Canada imposes a tariff of $t per cotton towel, the deadweight loss to the Canadian economy is shown by area

Question

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is P W . Assume that all cotton towels are identical.
  FIGURE 34- 3
-Refer to Figure 34- 3. If Canada imposes a tariff of $t per cotton towel, the deadweight loss to the Canadian economy is shown by area

Quizplus · Accepted Answer

The deadweight loss caused by the tariff is shown by the reduction in consumer surplus (area B) and the reduction in producer surplus (area D), which together form the triangular area C. Therefore, the correct answer is C, which represents the deadweight loss due to the tariff. Areas A and H represent the revenue gain by the government and the transfer of surplus from consumers to producers, respectively, but they do not contribute to the deadweight loss.

The Diagram Below Shows the Domestic Demand and Supply Curves