Price per Saddle Domeslic Supply P2 Tariff World Price P1 Domestic Demand Q1 Q2 Q3 Q4 Quantity of Saddles Before the tariff is implemented, what is the size of consumer surplus? O A + B OA + B + C + D + E + F NG + Ç

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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### Graph Explanation

The diagram is a supply and demand graph representing the market for saddles, illustrating the effects of a tariff. 

- **Axes**: 
  - The vertical axis represents the "Price per Saddle."
  - The horizontal axis represents the "Quantity of Saddles."

- **Curves**:
  - The upward sloping line is the "Domestic Supply" curve. 
  - The downward sloping line is the "Domestic Demand" curve.

- **Horizontal Line**:
  - The line at the "World Price" level, which becomes higher after the introduction of a tariff. The tariff increases the price from \( P_1 \) to \( P_2 \).

- **Areas**:
  - **A and B**: Triangular areas between the Domestic Supply and Demand curves above the world price \( P_1 \) before the tariff.
  - **C, D, E, F**: Rectangular and triangular areas between the world price \( P_1 \) and the higher tariff-included price \( P_2 \).
  - **G**: Triangular area below the world price \( P_1 \).

- **Quantities**:
  - \( Q_1 \), \( Q_2 \), \( Q_3 \), \( Q_4 \) indicate different levels of quantity of saddles, showing changes in quantity before and after the tariff.

### Question

Before the tariff is implemented, what is the size of consumer surplus?

### Options

- A
- A + B
- A + B + C + D + E + F
- G + C

The correct answer for consumer surplus before the tariff is the area above the world price \( P_1 \) and below the demand curve.
Transcribed Image Text:### Graph Explanation The diagram is a supply and demand graph representing the market for saddles, illustrating the effects of a tariff. - **Axes**: - The vertical axis represents the "Price per Saddle." - The horizontal axis represents the "Quantity of Saddles." - **Curves**: - The upward sloping line is the "Domestic Supply" curve. - The downward sloping line is the "Domestic Demand" curve. - **Horizontal Line**: - The line at the "World Price" level, which becomes higher after the introduction of a tariff. The tariff increases the price from \( P_1 \) to \( P_2 \). - **Areas**: - **A and B**: Triangular areas between the Domestic Supply and Demand curves above the world price \( P_1 \) before the tariff. - **C, D, E, F**: Rectangular and triangular areas between the world price \( P_1 \) and the higher tariff-included price \( P_2 \). - **G**: Triangular area below the world price \( P_1 \). - **Quantities**: - \( Q_1 \), \( Q_2 \), \( Q_3 \), \( Q_4 \) indicate different levels of quantity of saddles, showing changes in quantity before and after the tariff. ### Question Before the tariff is implemented, what is the size of consumer surplus? ### Options - A - A + B - A + B + C + D + E + F - G + C The correct answer for consumer surplus before the tariff is the area above the world price \( P_1 \) and below the demand curve.
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