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Government Tariff Revenue

From Figure 8-4, determine the effect of a 33 percent import tariff on commodity X.

The tariff-inclusive price will be $3(1+.33) = $4. What are the impacts of tariff on domestic consumption, domestic production, imports, and government's tariff revenue? Please show the numbers, for example, the domestic consumption will decrease from 600X to 500X.

Figure 8-4 Consumption, Production and Imports under Free Trade - In the absence of trade, equilibrium is at point E, where Dx and Sx intersect, so that Px = $5 and Qx = 400. With free trade at the world price of Px = $3, domestic consumers purchase AC=600X, of which AB = 200X are produced domestically and BC = 400X

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Solution:

In case government imposes a tariff of 33% on imports. New Import price will be $3*(1.33%)=$4

Sf curve will move to Sf'.

C' point ...

Solution Summary

Government Tariff Revenue is figured.

$2.19