The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. Following the imposition of tariff, the domestic consumer surplus _____ by the area _____. A)increases; c + d B)decreases; d C)decreases; (a + b + c +d) D)increases; (b + d)

Question

Quizplus · Accepted Answer

When tariff is imposed, the domestic price line shifts upwards to the tariff line, resulting in a decrease in consumer surplus. The new consumer surplus is represented by the area (a+b+d). Hence, the correct choice is C as it represents the decrease in consumer surplus by the areas (a+b+c+d), which includes the correct area of (a+b+d) and an additional area (c) that does not contribute to the decrease in consumer surplus.

The Figure Given Below Shows the Market for Shoes in the U.S