- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 6. International Trade
- Subject 2. International Trade Restrictions and Agreements
CFA Practice Question
Assume a small country imposes a tariff.
After the tariff, the consumer surplus will decrease by ______.
A. F
B. E + F + G
C. B + E + F + G
Explanation: Consumer surplus will decrease if the price rises.
User Contributed Comments 4
| User | Comment |
|---|---|
| Mariana80 | Why would B be added? |
| vinoth84 | can anyoe help, why was B added to consumer surplus decrease? |
| birdperson | the supply line would have intersected the demand line at the original price. Thus, everything above the dotted line (price without tariff) would have been consumer surplus -- so the loss includes B + E + F + G |
| ascruggs92 | The entire area below the demand line but above the price (represented by the dotted line) is consumer surplus - A + D + B + E + F + G is there for the original consumer surplus. The Tariff reduces consumer surplus to just A & D |