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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Identify the directional change in consumers’ surplus and producers’ surplus when we move from free trade to tariffs. Is the change in consumers’ surplus greater than, less than, or equal to the change in producers’ surplus?

To determine

The directional changes in consumers’ and producers’ surplus.

Explanation

A movement from free trade to tariff will reduce the consumers’ surplus more than the producers’ surplus. This is because free trade enables the consumers to purchase anything from the rest of the world; while after imposing a tariff, there is an increase in the price of foreign goods in the domestic market. Consumers’ surplus represents the area below the demand curve and above the price level...

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