Question

Suppose Domestic Demand is given by: Q_D=900-7P and Domestic Supply is given by Q_S=100+9P. Also suppose the world price is $35. If the government imposes a $5 tariff of each unit of the good imported, what is Government Revenue resulting from the tariff? (Do not include the "$" symbol.)

Answer 1

Given:

Domestic Demand(Qd)= 900 - 7p

Domestic Supply(Qs)= 100 +9p

To find the equilibrium price => Qd= Qs

therefore, 900 - 7p= 100 + 9p

800= 16p

P= 50 (Domestic Price)

Total quantity supplied = 100 + 9p= 100 + 9(50)= 550 units

Total income after import tariff = 550 x (50 + 5) = 30,250     => ( 5= import tariff)

Total import cost (at world price)= 550 x 35 = 19,250

Government revenue after tariff imposition= total income - total import cost

--- 30,250 - 19250= 11000