When Australia imposes a tariff on a good, the amount of the _______ in Australian consumer surplus is _______ the amount of the _______ in Australian producer surplus .
A) decrease; larger than; decrease
B) decrease; equal to; increase
C) decrease; larger than; increase
D) increase; smaller than; increase

Question

Quizplus · Accepted Answer

When Australia imposes a tariff on a good, the amount of the decrease in Australian consumer surplus is larger than the amount of the increase in Australian producer surplus. This is because the tariff raises the price of the good, leading to a decrease in consumer surplus as consumers pay more or buy less. Some of this loss in consumer surplus translates into increased producer surplus as domestic producers can charge higher prices or sell more, but the overall effect is a net loss in welfare due to the inefficiencies tariffs introduce, including the deadweight loss.

When Australia Imposes a Tariff on a Good, the Amount