Question

Scenario 1

Answer 1

Answer: (see the image attached also)

1. B. 250,000; 50,000

Before the tariff, the domestic market demanded 750,000 bottles, but the domestic producers can only produce 500,000 bottles.

=> To meet the demand of the market, have to import: 750,000-500,000 = 250,000

After the tariff, the domestic market demanded 650,000 bottles, but the domestic producers can only produce 600,000 bottles.

=> To meet the demand of the market, have to import: 650,000-600,000 = 50,000

2. D. rise; $2.75 million

Look at the image attached, when the tariff is imposed, the surplus of producers increase by an amount equal to the area of a, which is equal to: (500,000+600,000) x 5 / 2 = $2.75 million

3. C. fall; $3.5 million

Look at the image attached, when the tariff is imposed, the surplus of producers decrease by an amount equal to the area of (a+b+c+d), which is equal to:

(750,000 + 650,000)x5/2= $3.5 million

4. A. $250,000

The number of import when there is the tariff is 50,000 bottles

=> Revenue of government: 5 x 50,000 = $250,000

5. A. $250,000

The imposition of tariff causes the production effect equal to the area of c, which is:

(600,000-500,000)x5/2= $250,000

6. A. $250,000

The imposition of tariff causes the consumption effect equal to the area of d, which is:

(750,000-650,000)x5/2= $250,000