📚 Learning Guide
Effects of Tariffs on Trade
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How does imposing a tariff typically affect consumer surplus in a domestic market?

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Choose the Best Answer

A

It decreases consumer surplus due to higher prices.

B

It increases consumer surplus by reducing prices.

C

It has no effect on consumer surplus.

D

It increases consumer surplus by increasing imports.

Understanding the Answer

Let's break down why this is correct

Answer

When a government imposes a tariff, it raises the price of imported goods. This means that consumers have to pay more for these products, which can lead to a decrease in their overall satisfaction or consumer surplus. Consumer surplus is the difference between what consumers are willing to pay and what they actually pay; if prices go up because of the tariff, consumers are getting less value for their money. For example, if a popular smartphone that costs $500 without a tariff suddenly costs $600 due to a tariff, some people may choose not to buy it, leading to a loss in consumer surplus. Overall, tariffs generally hurt consumers by making goods more expensive and reducing their purchasing power.

Detailed Explanation

When a tariff is added, it raises the price of imported goods. Other options are incorrect because This option suggests that tariffs lower prices, but they actually raise them; This choice claims tariffs have no effect, but they do change prices.

Key Concepts

Effects of Tariffs
Consumer Surplus Changes
International Trade Dynamics
Topic

Effects of Tariffs on Trade

Difficulty

medium level question

Cognitive Level

understand

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