The following image shows the market for wheat for the country of Palatino. S^D is the domestic supply of wheat, and D^D is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. The net welfare loss from the tariff is represented by the area _____.

Question

The following image shows the market for wheat for the country of Palatino. S<sup>D</sup> is the domestic supply of wheat, and D<sup>D</sup> is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. The net welfare loss from the tariff is represented by the area _____. A) A and C B) I and H C) B and D D) E E) F

Quizplus · Accepted Answer

The net welfare loss from the tariff is represented by the deadweight loss (DWL), which is the difference between the domestic quantity consumed and the quantity produced. In this case, after the imposition of the tariff, the domestic quantity produced increases from Q1 to Q2 and the domestic quantity consumed decreases from Q1 to Q3. Thus, the deadweight loss is represented by the area of the triangle bounded by Q2, Q3, and the vertical line at P1. This area is B and D. Therefore, the correct answer is C.

The Following Image Shows the Market for Wheat for the Country