A tariff is imposed on a good. This will _______ the domestic producer surplus, _______ the domestic consumer surplus, and _______ total surplus in the home country.

Question

Quizplus · Accepted Answer

When a tariff is imposed on a good, it increases the cost for importers, which typically leads to higher prices for consumers. This results in an increase in domestic producer surplus because domestic producers can sell their goods at higher prices or face less competition from imports. However, it decreases domestic consumer surplus because consumers have to pay more for the goods, whether imported or domestically produced. Overall, the total surplus in the home country decreases because the loss in consumer surplus is greater than the gain in producer surplus, and there are also efficiency losses due to the tariff.

A Tariff Is Imposed on a Good