Consider a small open economy that produces computers and textiles. The world price of computers is less than the country’s autarky price of computers and the world price of textiles is greater than the county’s autarky price of textiles. A tariff levied on imports of computers willGroup of answer choicesDecrease the producer surplus of domestic computer producersDecrease the consumer surplus of domestic computer consumersDecrease the producer surplus of foreign computer producersNone of the other options
Question
Consider a small open economy that produces computers and textiles. The world price of computers is less than the country’s autarky price of computers and the world price of textiles is greater than the county’s autarky price of textiles. A tariff levied on imports of computers willGroup of answer choicesDecrease the producer surplus of domestic computer producersDecrease the consumer surplus of domestic computer consumersDecrease the producer surplus of foreign computer producersNone of the other options
Solution 1
The imposition of a tariff on computer imports will decrease the consumer surplus of domestic computer consumers. Here's why:
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A tariff is a tax imposed on imported goods. In this case, the tariff is imposed on imported computers.
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When a tariff is imposed, the price of the imported good increases. This is because the importers will pass on the cost of the tariff to the consumers.
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As the price of computers increases due to the tariff, consumers will have to pay more for the same product. This leads to a decrease in consumer surplus.
Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. When the price of a good increases, consumers either have to pay more or buy less, both of which lead to a decrease in consumer surplus.
So, the correct answer is "Decrease the consumer surplus of domestic computer consumers".
Solution 2
The imposition of a tariff on computer imports will decrease the consumer surplus of domestic computer consumers. Here's why:
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A tariff is a tax imposed on imported goods. In this case, it's on computers.
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When a tariff is imposed, the price of imported computers will increase. This is because the importers will pass on the cost of the tariff to the consumers.
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As the price of computers increases, consumers will have to pay more for the same product. This means that they are getting less value for their money, which leads to a decrease in consumer surplus.
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Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. When the price increases due to the tariff, this difference decreases, leading to a decrease in consumer surplus.
So, the correct answer is: Decrease the consumer surplus of domestic computer consumers.
Similar Questions
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