Question

If a government imposes tariffs on an imported good, the producer surplus is ______ than in a completely open economy and ______ than in a completely closed economy.

		greater; greater
		less; less
		greater; less
		less; greater

Answer 1

Answer to the following question:

Option c: Greater, Less.

Explanation: When the world price remain lower than the domestic equilibrium price open up the economy for the free trade will lead to a rise in the total surplus of the nation but the producer surplus of the domestic producers decline. Now to save the producers if the government imposes a import tariff then this will cause the price of the imported good to go u in the domestic economy, this will reduce the import and also the producer surplus of the domestic producer go up. Thus, when a government imposes tariffs on an imported good, the producer surplus is greater than in a completely open economy and less than in a completely closed economy.

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