Question

Given the previous questions with a world price of 34, and the domestic demand and supply curves given by the following equations:
D: P= 80 - 2Q S: P= 10 + 3Q

Suppose the government imposes a tariff equal to 6 which increases the price in the domestic market to 40. Given the tariff and new price to consumers, domestic consumers will now import ______ units of the good, the government will collect ______ in tariff revenue, and the total deadweight/welfare loss from lost consumer and producer surplus equals _____.

Select one:

a. 10, 60, 15

b. 15, 6, 6

c. 10, 30, 9

d. 100, 100, 10

Answer 1

Answer
Option a
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P=34
quantity demanded is
34=80-2Q
2Q=46
Q=23
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Quantity supplied is
34=10+3Q
3Q=24
Q=8
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Now,
P=40
Qd is
40=80-2Q
2Q=40
Q=20
And
Qs is
40=10+3Q
Q=10
Import =Qd-Qs=20-10=10 units
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tax revenue =tariff * import
=6*10=$60
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DEL is the area in yellow in the graph
it is the
=0.5*change in Qs *tariff +0.5*change in Qd*tariff
=0.5*(10-8)*6+0.5*(23-20)*6
=15
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