The reduction in domestic quantity demanded,and therefore reduction in consumer surplus,of a commodity resulting from the increase in its price due to a tariff is attributed to the:
A)production effect of a tariff
B)trade effect of a tariff
C)revenue effect of a tariff
D)consumption effect of a tariff

Question

Quizplus · Accepted Answer

The reduction in domestic quantity demanded and consumer surplus due to an increase in the price of a commodity is referred to as the consumption effect of a tariff. This effect occurs because the higher price caused by the tariff discourages some consumers from buying the product, reducing the quantity demanded and overall consumer surplus. The production effect of a tariff refers to the increase in domestic production of the protected good, while the trade effect refers to the change in trade patterns resulting from the tariff. The revenue effect of a tariff relates to the government's revenue from the tariff.

The Reduction in Domestic Quantity Demanded,and Therefore Reduction in Consumer