In general, a tariff reduces the national welfare of the small importing nation because:
A) there is a fall in producer surplus.
B) there is a rise in consumer surplus.
C) the gain in consumer surplus is smaller than the loss in producer surplus.
D) the gain in producer surplus is smaller than the loss in consumer surplus.

Question

Quizplus · Accepted Answer

When a tariff is imposed, there is an increase in the price of the imported product, leading to a decrease in the quantity demanded. This creates a shortage and encourages domestic producers to increase supply. However, the increase in domestic production comes at a higher cost than importing, leading to a decrease in consumer surplus. The gain in producer surplus is smaller than the loss in consumer surplus, resulting in an overall reduction in national welfare.

In General, a Tariff Reduces the National Welfare of the Small