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A small country’s demand curve is given by Q=36-2P and its supply curve is given by Q=4P-12.  Assume the world is currently in free trade and that the price under free trade is $4.  What will be the government revenue if this country implements a $2 specific import tariff?Group of answer choices39782426

Question

A small country’s demand curve is given by Q=36-2P and its supply curve is given by Q=4P-12.  Assume the world is currently in free trade and that the price under free trade is 4. Whatwillbethegovernmentrevenueifthiscountryimplementsa4.  What will be the government revenue if this country implements a 2 specific import tariff?Group of answer choices39782426

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Solution

To calculate the government revenue from the import tariff, we first need to find the quantity of goods imported.

  1. Calculate the quantity demanded and supplied at the world price of $4:

    For the demand curve Qd = 36 - 2P, substitute P = 4: Qd = 36 - 2*4 = 28

    For the supply curve Qs = 4P - 12, substitute P = 4: Qs = 4*4 - 12 = 4

  2. Calculate the quantity of goods imported at the world price: Quantity of imports = Qd - Qs = 28 - 4 = 24

  3. Calculate the new quantity demanded and supplied at the tariff-inclusive price of $6:

    For the demand curve Qd = 36 - 2P, substitute P = 6: Qd = 36 - 2*6 = 24

    For the supply curve Qs = 4P - 12, substitute P = 6: Qs = 4*6 - 12 = 12

  4. Calculate the new quantity of goods imported at the tariff-inclusive price: Quantity of imports = Qd - Qs = 24 - 12 = 12

  5. Calculate the government revenue from the import tariff: Government revenue = tariff rate * quantity of goods imported Government revenue = 2∗12=2 * 12 = 24

So, the government revenue if this country implements a 2specificimporttariffwillbe2 specific import tariff will be 24.

This problem has been solved

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