Question

True False Explain If a small country imposes a tariff on imported bicycles, then consumer surplus will increase.

Answer 1

Ans) When world price is below domestic price, country imports goods. This reduces the price of product. As a result, consumer surplus increases while producer surplus decreases.

In order to protect domestic producers, government imposes tariff i.e tax on imported items.

Tariff increases the price of good and hence consumer surplus decreases while producer surplus increases when compared to free trade.

False.