Exhibit 33-3

-Refer to Exhibit 33-3. The world price is P_W. If a tariff is imposed the price rises to P_W + T. Because of the tariff, consumers' surplus is reduced by an amount equal to the area of

Question

Exhibit 33-3 -Refer to Exhibit 33-3. The world price is P_W. If a tariff is imposed the price rises to P_W + T. Because of the tariff, consumers' surplus is reduced by an amount equal to the area of

Quizplus · Accepted Answer

Consumers' surplus is reduced by the area under the demand curve and above the price line. When a tariff is imposed, the price increases, reducing the area under the demand curve that represents consumers' surplus. This reduction includes the areas representing the tariff revenue (area 3), the deadweight loss due to decreased consumption (area 1), and the deadweight loss due to decreased production efficiency (area 2), as well as the area representing the increased costs to consumers who still purchase the product at the higher price (area 4).

Exhibit 33-3 ​

Exhibit 33-3