Mexico has imposed a tariff on the importation of chocolate.As a consequence of the tariff,
A)Mexico as a whole is better off,since the tariff increases employment and production in the domestic chocolate industry.
B)Mexico as a whole is better off,since the tariff results in tax revenue for the Mexican government.
C)Mexico as a whole is worse off,since producer surplus and consumer surplus both decrease.
D)Mexico as a whole is worse off,since the increase in producer surplus is smaller than the drop in consumer surplus plus tariff revenues.

Question

Mexico has imposed a tariff on the importation of chocolate.As a consequence of the tariff,
A)​Mexico as a whole is better off,since the tariff increases employment and production in the domestic chocolate industry.
B)​Mexico as a whole is better off,since the tariff results in tax revenue for the Mexican government.
C)​Mexico as a whole is worse off,since producer surplus and consumer surplus both decrease.
D)​Mexico as a whole is worse off,since the increase in producer surplus is smaller than the drop in consumer surplus plus tariff revenues.

Quizplus · Accepted Answer

When a tariff is imposed, it raises the price of the imported good, in this case, chocolate. This causes a decrease in consumer surplus since consumers now have to pay a higher price for chocolate. The domestic chocolate industry may see an increase in production and employment, resulting in an increase in producer surplus. However, this increase may not be enough to offset the decrease in consumer surplus plus the tariff revenue earned by the government. Therefore, Mexico as a whole is worse off. Choice A and B are incorrect because the benefits of increased employment and tax revenue may not be enough to outweigh the costs of decreased consumer surplus and increased producer surplus. Choice C is partially correct but does not take into account the revenue earned by the government from the tariff.

Mexico Has Imposed a Tariff on the Importation of Chocolate