Given the following information pertaining to large country A with respect to good X Under free trade and with a tariff in place:
$\begin{array} { l r }
\text { domestic price of X under free trade } & \$ 100 \
\text { world price of X under free trade } & \$ 100 \
\text { domestic price of X with tariff in place } & \$ 103 \
\text { world price of X with tariff in place } & \$ 98 \
\text { domestic production of X under free trade } & 40 \text { units } \
\text { domestic production of X with tariff in place } & 50 \text { units } \
\text { consumption of X under free trade } & 100 \text { units } \
\text { consumption of X with tariff in place } & 80 \text { units }
\end{array}$
What is the loss of consumer surplus in country A that occurs because of the imposition of the tariff?

Question

Given the following information pertaining to large country A with respect to good X Under free trade and with a tariff in place:
$\begin{array} { l r } 
\text { domestic price of X under free trade } & \$ 100 \
\text { world price of X under free trade } & \$ 100 \
\text { domestic price of X with tariff in place } & \$ 103 \
\text { world price of X with tariff in place } & \$ 98 \
\text { domestic production of X under free trade } & 40 \text { units } \
\text { domestic production of X with tariff in place } & 50 \text { units } \
\text { consumption of X under free trade } & 100 \text { units } \
\text { consumption of X with tariff in place } & 80 \text { units }
\end{array}$
What is the loss of consumer surplus in country A that occurs because of the imposition of the tariff?

Quizplus · Accepted Answer

The loss of consumer surplus due to the tariff can be calculated by considering the change in price and quantity consumed. Under free trade, consumers pay $100 for each unit and consume 100 units, leading to a total expenditure of $10,000. With the tariff, the domestic price rises to $103, and consumption decreases to 80 units, leading to a total expenditure of $8,240. However, to accurately calculate the loss in consumer surplus, we consider the area of the triangle formed by the price increase and the reduction in consumption. The base of the triangle is the decrease in consumption (20 units), and the height is the increase in price ($3). The area of this triangle is 1/2 * base * height = 1/2 * 20 * 3 = $30. However, this calculation only accounts for the direct cost increase due to the tariff, not the total loss in consumer surplus. The total loss in consumer surplus also includes the area representing the value consumers placed on units they no longer consume due to the price increase, which is not directly calculated from the given data. The correct approach involves considering the overall impact on consumer expenditure and welfare, including the reduction in consumer surplus due to both the higher prices and the reduced consumption. Given the options and the data provided, without the exact calculation method for consumer surplus loss from the information given, the answer is inferred based on the understanding of economic principles rather than a direct calculation from the provided data. The correct answer, considering the principles of consumer surplus and the impact of tariffs, would typically involve a more complex calculation considering the changes in price and quantity, suggesting a need for clarification or additional information to accurately calculate the loss in consumer surplus.

Given the Following Information Pertaining to Large Country a with Respect