Question

Explain why the following statements are true or false:                                                       

A: Exporting a good reduces consumer surplus therefor overall economic welfare decreases.                                                            

   B: Importing a good reduces producer surplus therefore overall economic welfare decreases.                                                     

C: A tariff reduces imports, increases domestic production and producer surplus therefore overall economic surplus increases.     

   D: Export subsidies increase both consumer and producer surplus thereof they improve overall net economic welfare. 


Answer 1

Answer

False

Exporting a good reduces consumer surplus, as the domestic price rises. But the fall in conaumer surplus is of a lesser magnitude than the rise in the producer surplus and there's a net economic welfare.

B. False

Importing a good reduces producer surplus because the price falls but due to this price fall consumers benefit. This increases the net economic welfare as the increase in consumer surplus is greater than the decreasing producer surplus.

C. False

An introduction of tariff reduces imports and increases producer surplus. water tariff also reduces consumer surplus and gives rise to deadweight loss thus, there is a net economic loss.

D. True

The exports subsidy increases the supply of the good which reduces cost and hence increases the equilibrium quantity in both domestic and export market. This is a net economic gain.

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