The production component of the deadweight loss in a small nation arises with a tariff because
A)some domestic resources are transferred from the production of an import-competing commodity to the more efficient use in the production of an exportable good.
B)some domestic resources are transferred from a more efficient use to less efficient production of an importable commodity
C)domestic producers are unhappy with the imposition of the tariff,and therefore refuse to produce a higher level of output.
D)domestic producers allocate fewer resources into the production of the import-competing good than they should based on their costs.

Question

Quizplus · Accepted Answer

The deadweight loss in a small nation arises with a tariff because it induces domestic producers to shift resources away from more efficient uses to the less efficient production of an importable commodity, resulting in a reduction in overall economic welfare. This occurs because the imposition of a tariff increases the price of the imported good, making domestic production relatively more attractive. As a result, domestic producers increase production, but this comes at the expense of other sectors of the economy that are more productive. This leads to a misallocation of resources and a reduction in economic efficiency, which is the source of deadweight loss.

The Production Component of the Deadweight Loss in a Small