The following figure shows the domestic demand and supply curves for a good. With free trade, the price of the good in the domestic market is P 3 . The government introduces a 5% tariff in the market which raises the domestic price to P 2 .
Figure 7-1

-Refer to Figure 7-1. With the imposition of the tariff, the change in consumer surplus is equal to:

Question

The following figure shows the domestic demand and supply curves for a good. With free trade, the price of the good in the domestic market is P 3 . The government introduces a 5% tariff in the market which raises the domestic price to P 2 .
Figure 7-1
 
-Refer to Figure 7-1. With the imposition of the tariff, the change in consumer surplus is equal to:

Quizplus · Accepted Answer

The change in consumer surplus is the area of the triangle formed by points P₂, P₃, and the point where the domestic demand curve intersects with the quota line (point H). With the imposition of the tariff, the price of the good in the domestic market increases, causing a decrease in consumer surplus. The area of P₂HKP₃ represents this loss in consumer surplus.

The Following Figure Shows the Domestic Demand and Supply Curves