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 deadweight loss in the market 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 deadweight loss in the market is equal to:

Quizplus · Accepted Answer

Deadweight loss due to a tariff is represented by the loss in consumer and producer surplus that is not offset by government revenue. This is typically shown as the areas of the triangles formed by the reduction in quantity traded due to the tariff. Hence, the correct areas representing deadweight loss are JGL + HMK.

The Following Figure Shows the Domestic Demand and Supply Curves