Question

what is the producers surplus when barylia engages in trade and the government imposes a tariff of $1

Answer 1

Answer: $20

Explanation:

When the Government introduces a tariff, it will have the effect of reducing competition for the local producers because import prices will now be higher.

The Producer surplus before the tariff was G because they were forced to sell at the global price. With the imposition of the tariff, the price went to $4 or rather P2. This then increased Producer Surplus to include area F as well.

The total Producer Surplus is therefore, F + G.

This is a triangle so it will be solved for the area by the formula;

= $\frac{1}{2} * base * height$

= $\frac{1}{2}$ * 20 * ( 4 -2)

= 10 * 2

= $20