Reducing tariffs causes consumer surplus to increase but producer surplus to decrease.

Question

Quizplus · Accepted Answer

When tariffs are reduced, the prices of imported goods decrease, increasing the consumer surplus as consumers can now purchase these goods at a lower price. However, domestic producers face greater competition and may have to lower their prices, reducing their producer surplus. Therefore, reducing tariffs typically leads to an increase in consumer surplus and a decrease in producer surplus.

Reducing Tariffs Causes Consumer Surplus to Increase but Producer Surplus