Free Trade Boosts Consumer Surplus

Steps:

• Barriers like tariffs raise import prices, limiting consumer choices and increasing costs.
• Switching to free trade eliminates these barriers, lowering prices for imported and domestic goods.
• Lower prices and greater variety expand the difference between what consumers are willing to pay and what they actually pay.
• In the short term, this directly benefits consumers before producers fully adjust.

Why A is correct:

• Consumer surplus is the area between the demand curve and price; free trade shifts supply rightward, lowering price and increasing surplus per standard trade theory.

Why the others are wrong:

• B: Government revenue falls as tariffs and barriers, a key revenue source, are removed.
• C: Government surplus likely decreases due to lost tariff revenue without offsetting short-term gains.
• D: Domestic company profits often decline short-term from increased foreign competition eroding market share.

Final answer: A