Reference no: EM132145531

Imposing a tariff leads to the existence of two deadweight triangles, which are the Consumption distortion and Production distortion losses. It is easy to understand why consumption distortion constitutes a loss for society. After all it raises the prices of goods to consumers, and even causes some consumers to drop out of the market altogether. It seems paradoxical that the production distortion is considered an equivalent burden on society. After all, in this case, profits increase, and additional production comes on line. This would seem to be an offset rather than an addition to the burden or loss borne by society. Explain why the production distortion is indeed a loss to society, and what is wrong with the logic that leads to the apparent paradox.