Question

Suppose the nation of Sugarland consists of 50,000 households, 10 of whom are sugar producers. Arguing that the sugar industry is vital to the national economy, sugar producers propose an import tariff. The loss in consumer surplus due to the tariff will be $100,000 per year. The total gain in producer surplus will be $25,000 per year.
1. What is the gross cost per household per year of the proposed policy?

2. What is the policy's benefit per sugar producer per year?

Answer 1

Answer:

1. $2 per household per year

2. $2,500 per sugar producer per year

Explanation:

The computation is shown below:

1. The gross cost per household per year is shown below:

= Loss in consumer surplus due to the tariff ÷ Total number of households

= $100,000 ÷ 50,000 households

= $2 per household per year

2.  The policy's benefit is

= Total gain in producer surplus  ÷ number of sugar producers

= $25,000 ÷ 10 sugar producers

= $2,500 per sugar producer per year