Question 32

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

Imposing an import tariff on footwear raises the price of imported shoes, which typically leads to an increase in the domestic market price. This results in higher revenues for domestic producers, thereby increasing their producer surplus.

A) The quantity of footwear imported

This option is incorrect because an import tariff generally results in a decrease in the quantity of footwear imported. Higher prices due to tariffs discourage consumers from purchasing imported goods, leading to a reduction in import volumes.

B) Producer surplus for footwear

This option is correct as the imposition of a tariff raises the prices of imported footwear, allowing domestic producers to charge higher prices as well. This increase in price enhances the difference between the costs of production and the market price, thus increasing producer surplus.

C) Consumer surplus for footwear

Consumer surplus is likely to decrease when a tariff is implemented. As prices rise due to the tariff, consumers either pay more or buy less, which diminishes their overall consumer surplus.

D) The domestic demand for footwear

This option is incorrect because an import tariff does not increase domestic demand; rather, it may lead to a decrease in demand as consumers face higher prices. Domestic demand is generally a function of price levels, and higher prices can lead to reduced consumption.

Conclusion

The correct answer is that producer surplus for footwear increases due to the higher prices resulting from the tariff, which benefits domestic producers. In contrast, the other options either misinterpret the effects of tariffs or illustrate the negative consequences for consumers and import quantities. Thus, only Option B accurately reflects the economic impact of an import tariff on footwear.