Question

If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue, and domestic consumers will gain consumer surplus. e a. True b. False

Answer 1

The answer is False

As a result of the tariff, the consumer of the product in the importing country is worse off. The rise in domestic prices of both imported goods and domestic substitutes reduces the market's consumer surplus. As a result of the tariff, producers in the importing country are better off. The rise in their product's price increases the industry's producer surplus. The price increases also lead to an increase in the output of existing firms (and possibly the addition of new firms), an increase in employment, and an increase in profit and/or payments at fixed costs. As a result of the tariff, the government receives tariff income. Who will benefit from the income depends on how it is spent by the government. These funds help support various government spending programs, so someone in the country is likely to receive these benefits