Tariffs and quotas reduce consumer surplus because they increase the price of imported goods for consumers, leading to a decrease in consumer welfare. At the same time, they increase producer surplus in the importing country by providing domestic producers with a price advantage over foreign competitors, which can lead to increased sales and profits for domestic producers.

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Tariffs and Quotas

Question 53

Multiple Choice

Tariffs and quotas:

A) reduce consumer surplus and increase producer surplus in the importing country.
B) increase consumer surplus and reduce producer surplus in the importing country.
C) reduce both consumer surplus and producer surplus in the exporting country.
D) are imposed when there are differences in the opportunity cost of production across countries.
E) are imposed when production is subject to economies of scale.

Correct Answer: