In 1845, French economist Frédéric Bastiat famously compared tariffs to blocking out the sun, since both low-priced imports and free sunlight discourage domestic industry. What part of the trade diagram best describes the encouragement of domestic industry if Bastiat's “blockade” were taken seriously?
fall in producer surplus
fall in consumer surplus
deadweight loss
wasted resources
In the context of Frédéric Bastiat's analogy comparing tariffs to blocking out the sun, the part of the trade diagram that best describes the encouragement of domestic industry if Bastiat's "blockade" were taken seriously is deadweight loss.
When tariffs are imposed, they can protect domestic industries by making imported goods more expensive, which may lead to an increase in domestic production. However, this protection comes at a cost, as it can lead to inefficiencies in the market. The deadweight loss represents the loss of economic efficiency when the equilibrium outcome is not achievable or not achieved. In this case, while domestic producers may benefit from reduced competition, consumers face higher prices and reduced choices, leading to an overall loss in welfare in the economy.
Thus, the encouragement of domestic industry through tariffs can result in deadweight loss, as resources are not allocated efficiently.