The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical.
FIGURE 34- 4
-Refer to Figure 34- 4. Suppose the world price of bicycles is $200 and Canada has in place a 50- percent tariff on this good. The deadweight loss to the Canadian economy resulting from this tariff is per year.

Question

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical.
  FIGURE 34- 4
-Refer to Figure 34- 4. Suppose the world price of bicycles is $200 and Canada has in place a 50- percent tariff on this good. The deadweight loss to the Canadian economy resulting from this tariff is per year.

Quizplus · Accepted Answer

The deadweight loss is the area of the triangle formed by the world price, the domestic price, and the quantity demanded at the domestic price. This area is equal to 1/2 * (domestic price - world price) * (quantity demanded at domestic price). In this case, the domestic price is $200 * 1.50 = $300, and the quantity demanded at the domestic price is 1 million units. Therefore, the deadweight loss is 1/2 * ($300 - $200) * (1 million) = $50 million.

The Diagram Below Shows Supply and Demand Curves for Bicycles