Question

Guatemala is open to international trade in maize without any restrictions, it will import tons of maize. Suppose the Guatemalan government wants to reduce imports to exactly 60 tons of maize to help domestic producers. A tariff of $ per ton will achieve this. A tariff set at this level would raise $ in revenue for the Guatemalan government.

Answer 1

Answer: $3,600

Explanation:

For gautamala government to reduce imports to 60 tons of maize, the government must set a tariff that which would raise the price of maize to the point where the domestic quantity demanded exceeds Guatamala domestic quantity supplied by exactly 60 tons of maize.

A $60-per-ton tariff on maize would raise the domestic price of maize to ($330 per ton). This would be $60 per ton higher than the world price per ton which stands at $270.

When the price is $330 per ton, the domestic quantity demanded would increase to 240 tons, and the domestic quantity supplied would be 160 tons of maize.

A tariff set at this level would raise revenue for the Guatamala government.

$60-per-ton tariff on maize would cause Guatamala to import 60 tons of maize.

This sums up to $60per ton × 60ton

= $3600

The tariff would raise $3600 revenue for the Guatamala government.