The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The imposition of a tariff on computers caused the surplus of the U.S. consumers to _____ by _____. A)fall; $10 million B)fall; $40million C)rise; $76 million D)fall; $78 million

Question

Quizplus · Accepted Answer

When a tariff is imposed, the domestic price of computers increases, reducing the quantity demanded and increasing the quantity supplied domestically. The change in consumer surplus is negative because consumers are paying a higher price for the same amount of output. Similarly, the change in producer surplus is positive because producers are receiving a higher price for the same amount of output. The government revenue from the tariff is represented by the shaded rectangle between the domestic and international price lines.

The decrease in consumer surplus due to the tariff can be calculated as the area of the triangle between the original and new demand curves and above the domestic price line (shaded in red). This is approximately $78 million.

Therefore, the correct answer is (D) fall; $78 million.

The Figure Given Below Shows the Market for Computers in the U.S