Use the following to answer questions :
Figure 18-3
-If the world price in Figure 18-3 were $1.00, what size tariff would be required to a maintain domestic supply of 200 units?
A)$0.50.
B)$1.00.
C)$1.50.
D)$2.00.
E)$2.50.

Question

Use the following to answer questions :
Figure 18-3 
-If the world price in Figure 18-3 were $1.00, what size tariff would be required to a maintain domestic supply of 200 units?
A)$0.50. 
B)$1.00. 
C)$1.50. 
D)$2.00. 
E)$2.50.

Quizplus · Accepted Answer

At a world price of $1.00, the domestic market would want to import 300 units (point B on the graph). To maintain domestic supply at 200 units, a tariff would need to be imposed that raises the price to $1.50 (point C). This would reduce imports to 200 units, which is balanced by domestic supply. Therefore, the required tariff would be $0.50 (i.e., the difference between the world price and the domestic price with the tariff imposed). So, the correct option is (C) $1.50.

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