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Suppose the country of Microlandia initially free trades with the rest of the world in bananas...

Suppose the country of Microlandia initially free trades with the rest of the world in bananas at the world price of $1000 per ton of bananas. The domestic demand for bananas in Microlandia is QD = 60000 – 15p and the domestic supply is QS = 10p. If the government of Microlandia imposes a tariff of $500 per ton of banana imports, calculate the tariff revenue and the DWL from the tariff.

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Answer #1

Answer
Qd=60000-15P
Qs=10P
world price=1000
tariff=500
world price + tariff=1500
at world price
Qd=60000-15*1000=45000
Qs=10*1000=10000
at world price + tariff
Qd=37500
Qs=15000
after tariff
Import=Qd-Qs=37500-15000=22500
Tax revenue=import*tariff=22500*500=11250000
DWL=0.5*500*(5000)+0.5*500*(45000-37500)
=3125000

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