When a country moves away from a free trade position and imposes a tariff on imports,this causes

Question

Quizplus · Accepted Answer

Imposing a tariff on imports reduces the overall level of trade and increases the cost of imported goods. This causes a decrease in total surplus in the market, which is the sum of producer surplus and consumer surplus. The increase in cost leads to lower quantity demanded, which increases consumer surplus for domestic producers, but decreases consumer surplus for domestic consumers. The net effect is a decrease in total surplus. Tariffs also generate revenue for the government, so D is incorrect. B is also incorrect because producer surplus may increase for domestic producers. However, this increase is offset by a decrease in consumer surplus. Thus, A is the best answer.

When a Country Moves Away from a Free Trade Position