Difficulty: Hard

Average Score: 33%

When an import tariff is placed on footwear which quantity increases?

Rationale

Producer surplus for footwear increases when an import tariff is placed.

An import tariff raises the cost of imported footwear, leading to reduced competition for domestic producers. This enables domestic manufacturers to increase their prices and enhance their profits, resulting in a higher producer surplus.

A (The quantity of footwear imported) YOUR ANSWER

When an import tariff is imposed, the price of imported footwear rises, which typically leads to a decrease in the quantity of footwear imported. Consequently, this option does not align with the effects of a tariff, as the intention is to protect domestic industries rather than increase imports.

B (Producer surplus for footwear) CORRECT

The imposition of an import tariff raises the market price of domestically produced footwear by reducing competition from imports. This allows domestic producers to sell their goods at a higher price, thereby increasing their profit margins and overall producer surplus, which is the correct answer.

C (Consumer surplus for footwear) YOUR ANSWER

Consumer surplus refers to the difference between what consumers are willing to pay and what they actually pay. An import tariff generally raises prices for consumers, leading to a decrease in consumer surplus as they face higher costs for the same goods, making this option incorrect.

D (The domestic demand for footwear) YOUR ANSWER

An import tariff does not directly increase domestic demand for footwear; rather, it may cause a shift in demand towards domestic products due to higher prices of imports. However, this does not equate to an increase in overall demand, making this choice inaccurate.

Conclusion

The introduction of an import tariff on footwear primarily benefits domestic producers by increasing their producer surplus, as they can charge higher prices without the pressure of foreign competition. In contrast, consumer surplus decreases due to higher prices, and the quantity of imports diminishes. This economic dynamic underscores the protective nature of tariffs in domestic markets.

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