Question

Country Z is both a producer and an importer of cloth. Which of the following will happen if the government of Country Z imposes a tariff on cloth and the country continues to import some cloth from abroad?


There will be a decrease in domestic producer surplus.

Option A,There will be a decrease in domestic producer surplus.

a

There will be an increase in the quantity demanded for cloth.

Option B,There will be an increase in the quantity demanded for cloth.

b

As the country produces more cloth, there will be an efficiency gain for the economy.

Option C,As the country produces more cloth, there will be an efficiency gain for the economy.

c

There will be a decrease in consumer surplus for domestic consumers.

Option D,There will be a decrease in consumer surplus for domestic consumers.

d

The domestic consumption of cloth will increase.

Answer 1

Correct answer: D only.

Explanation in brief:
- A is false — domestic producer surplus rises because the tariff raises the domestic price and encourages more domestic production.
- B is false — the higher price reduces quantity demanded.
- C is false — shifting production to less efficient domestic producers creates a production inefficiency (deadweight loss), not an efficiency gain.
- D is true — higher domestic price reduces consumer surplus.
- The domestic consumption of cloth falls (so the final statement is false).

(Also: imports fall but remain positive, and the government collects tariff revenue.)