The Impact of Barriers to Trade on Consumer and Producer Surplus

What happens to consumer and producer surplus when barriers to trade are imposed?

a) Remain unchanged; decrease; increase
b) Increase; remain unchanged; decrease
c) Decrease; increase; remain unchanged
d) Decrease; remain unchanged; increase

Answer:

The correct answer is d) Decrease; remain unchanged; increase.

When barriers to trade are imposed and imports are excluded, the price increases. This leads to an increase in producer surplus and a decrease in consumer surplus.

Explanation:

When barriers to trade are imposed and imports are excluded, the price of the product increases. This leads to an increase in producer surplus as producers are able to sell more quantity at a higher price. On the other hand, consumers now have to pay a higher price for a lower quantity, leading to a decrease in consumer surplus.

Thus, the correct answer is d) Decrease; remain unchanged; increase.