When a country moves away from a free trade position and imposes a tariff on imports,it causes
A)a decrease in total surplus in the market.
B)a decrease in producer surplus in the market.
C)an increase in consumer surplus in the market.
D)a decrease in revenue to the government.

Question

Quizplus · Accepted Answer

When a country imposes a tariff on imports, it causes an increase in the price of imported goods, which leads to a decrease in the quantity demanded. This ultimately results in a decrease in total surplus in the market since there is not only a decrease in producer surplus but also a decrease in consumer surplus due to the higher prices they have to pay. In addition, the government may not necessarily receive revenue since a decrease in imports would also mean a decrease in the tariff earnings.

When a Country Moves Away from a Free Trade Position