Question

Suppose that Congress imposes a tariff on imported steel to protect the U.S. steel industry from foreign competition. Describe in detail the effect this would have on the consumer surplus, the producer surplus, and the total surplus. Make sure to explain why these changes occur.

Answer 1

A tariff in the goods and services in the market will decrease the consumer surplus and increase the producer surplus and total surplus will decrease.

As the nation has input a tariff it will increase the cost for the consumer and they have to pay more and buy less. It will decrease the total surplus. On the other hand, due to increased price the local producers can produce which they were unable to produce theese were the inefficient firm in the market.

The decrease form the consume surplus will result In come producer surplus, and government revenue, And the remaining will be dead weight loss. It will result in low total surplus.