(Figure: A Tariff on Oranges in South Africa) Use Figure: A Tariff on Oranges in South Africa.When the government imposes a tariff on imported oranges,the price of oranges in South Africa rises from P_W to P_T and there's a net _ to total surplus of _.

A) addition;I + J + K+ L
B) addition;I + J + K
C) reduction;I + K
D) reduction;I + J + K + L

Question

(Figure: A Tariff on Oranges in South Africa) Use Figure: A Tariff on Oranges in South Africa.When the government imposes a tariff on imported oranges,the price of oranges in South Africa rises from P_W to P_T and there's a net _____ to total surplus of _____.

A) addition;I + J + K+ L
B) addition;I + J + K
C) reduction;I + K
D) reduction;I + J + K + L

Sa’Ny Bryant · Accepted Answer

Final Answer : C, Explanation :  When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from P W  to P T . As a result of this, both consumer and producer surplus decreases. However, tariff revenue is generated which can be seen as a transfer from consumers to the government. The total surplus is equal to consumer surplus (area under the demand curve and above the price) + producer surplus (area below the price and above the supply curve) + tariff revenue (rectangular area between the two prices). In this case, the decrease in consumer surplus (I) and producer surplus (K) is greater than the increase in tariff revenue (no change in areas J and L) causing a reduction in total surplus. Therefore, the answer is C) reduction;I + K.

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