The graph at right shows the eflect on consumer surplus, producer surplus, gover

Question

The graph at right shows the eflect on consumer surplus, producer surplus, government tarfif revene and economic suplus of a tar, ot Si per unt on mports of plastc combs n the unted 91, u" the areas denoted in the graph to answer the following questions U.S. Supply which area(s) shows the total loss to u sconsumers asareta of the tar oncombs? A+B+C+D OC. B+C+D World priee plus tari Which area(a) shows the amount of surplus translerred rom consuners to producers as a resut of the larid on coms rid price Demand uanety of com which areals) show the deadweght loss to the US economv as a resuit ofthe tar oncomba? Cick to select your answer

Explanation / Answer

Answer 1 - The graph given above shows the consumer surplus, producer surplus, and deadweight loss. World price of plastic combs is $4.00 and supply curve is perfectly elastic. It means US can import as much it want from world market. US government imposed a tariff of $1. Now the world price becomes $5.00 per unit. According to the given figure,

(1) The area which shows total loss to US consumers is ''A+B+C+D'.

Option A is the correct answer.

(2) Area 'A' represents the amount of surplus that is transferred to producers from consumers as a result of tariff.

Option A is the correct answer.

(3) Area' B+D" shows the deadweight loss due to imposition of tariff. Because area B + D goes nowhere, it is totally lost. Area C goes to government as tax revenue. Area 'A' goes to producer surplus.

Option A is the correct answer.

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