Exhibit 19-3

-If the country illustrated in Exhibit 19-3 is initially trading without restrictions at a world price of $1.00,the loss of consumer surplus as a result of a tariff of $0.50 per unit is represented by area

Question

Exhibit 19-3
 
-If the country illustrated in Exhibit 19-3 is initially trading without restrictions at a world price of $1.00,the loss of consumer surplus as a result of a tariff of $0.50 per unit is represented by area

Quizplus · Accepted Answer

When the country initially trades without restrictions, the consumer surplus is represented by areas a+b+c+i. After the imposition of the tariff, the domestic price rises to $1.50, and the consumer surplus reduces to area a. The loss of consumer surplus due to the tariff is therefore represented by the areas b+c+i+e+f, which is choice C.

Exhibit 19-3 -If the Country Illustrated in Exhibit 19-3 Is Initially Trading