Exhibit 19-4

-If the country illustrated in Exhibit 19-4 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 19-4
 
-If the country illustrated in Exhibit 19-4 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

The loss of consumer surplus as a result of a tariff is represented by the decrease in the sum of consumer surplus and producer surplus. In this case, the tariff causes a decrease in consumer surplus (area c+i+e+f) and an increase in producer surplus (area b). Therefore, the loss of consumer surplus is represented by area c+i+e+f.

Exhibit 19-4 -If the Country Illustrated in Exhibit 19-4 Is Initially Trading