A tariff's effect on consumer surplus is best described as?

A tariff's effect on consumer surplus is best described as?

• A. Increases consumer surplus by making goods cheaper.
• B. Has no effect on consumer surplus.
• C. Reduces consumer surplus and raises prices.
• D. Always eliminates imports.

Answer: (C)

Tariffs raise the price of imported goods in the domestic market, and consumer surplus is the extra benefit buyers get from paying less than what they’re willing to pay. When a tariff pushes the price up, fewer people buy the good or they buy less of it, so the area under the demand curve and above the price paid shrinks. That is, consumers enjoy less benefit from the goods they purchase, and the overall consumer welfare falls. The tariff revenue collected by the government does not go back to consumers, so it doesn’t restore that lost surplus. Tariffs don’t make goods cheaper, they raise prices; they don’t necessarily eliminate imports, they simply reduce them; and they do have an effect on consumer welfare. Therefore, the effect is a reduction in consumer surplus accompanied by higher prices.

Tariffs raise the price of imported goods in the domestic market, and consumer surplus is the extra benefit buyers get from paying less than what they’re willing to pay. When a tariff pushes the price up, fewer people buy the good or they buy less of it, so the area under the demand curve and above the price paid shrinks. That is, consumers enjoy less benefit from the goods they purchase, and the overall consumer welfare falls. The tariff revenue collected by the government does not go back to consumers, so it doesn’t restore that lost surplus. Tariffs don’t make goods cheaper, they raise prices; they don’t necessarily eliminate imports, they simply reduce them; and they do have an effect on consumer welfare. Therefore, the effect is a reduction in consumer surplus accompanied by higher prices.