Question

If the domestic equilibrium price is $50, and the world price is $20, imposing a tariff of $10 per unit will A) Increase government revenue and increase welfare B) Increase government revenue and decrease welfare C) Decrease government revenue and increase welfare D) Decrease government revenue and decrease welfare

Answer 1

Answer:

A) Increase government revenue and increase welfare

Explanation:

Based on the elasticity of supply and demand a portion of the tariff will be taken between supplier and consumer but as the work price is 20 dollars a 10 dollar tariff completely passsed through consumers will still leave it below the currnet price of 50 dollars. Hence consumer will import the good increasing welfare as the amount saved will be used for other good or saved and the goverment will increase their revenue by collecting the tariff