Scenario: The domestic supply and demand of a good in the United States is shown in the figure below. Suppose the world price of this good is $4. Suppose the United States is considering levying a $2 tariff per unit on imports of this good.

-Refer to the scenario above.Before the tariff is imposed,the consumer surplus in the United States was ________; after the tariff,the consumer surplus becomes ________.

Question

Scenario: The domestic supply and demand of a good in the United States is shown in the figure below. Suppose the world price of this good is $4. Suppose the United States is considering levying a $2 tariff per unit on imports of this good.
 
-Refer to the scenario above.Before the tariff is imposed,the consumer surplus in the United States was ________; after the tariff,the consumer surplus becomes ________.

Quizplus · Accepted Answer

Before the tariff is imposed, the consumer surplus is the area above the world price ($4) and below the demand curve. This is equal to:

1/2 * (6-4) * (11-6) = $5

After the tariff is imposed, the domestic price will be $6 ($4 + $2 tariff). The new consumer surplus is the area above the domestic price and below the demand curve. This is equal to:

1/2 * (6-6) * (11-6) = $2.50

Therefore, the consumer surplus after the tariff will be $2.50, which is less than the consumer surplus before the tariff ($5). Thus, the correct answer is D.

Scenario: the Domestic Supply and Demand of a Good in the United