Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by DU.S. and SU.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by SU.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country ?
-According to Figure 4.2, the tariff changes the overall welfare of the United States by
A) rising by $250.
B) rising by $500.
C) falling by $250.
D) falling by $500.

Question

Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by DU.S. and SU.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by SU.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country  ?
-According to Figure 4.2, the tariff changes the overall welfare of the United States by
A) rising by $250. 
B) rising by $500. 
C) falling by $250. 
D) falling by $500.

Quizplus · Accepted Answer

According to Figure 4.2, the tariff causes a deadweight loss (or inefficiency) of $500, which is greater than the revenue (or government’s gain) of $250. This means that the overall welfare of the United States falls by $250 (i.e. reduction in consumer surplus and producer surplus by $250).

Assume the United States Is a Large Consumer of Steel