If a small country produces 100 units of product X and consumes 140 units at a price of $2 under free trade, but the imposition of a tariff leads to a situation where domestic price is $2.20, domestic production is 120 units, and domestic consumption is 125 units, then the gain in producer surplus in this country because of the tariff is __________.

Question

Quizplus · Accepted Answer

The gain in producer surplus is calculated as the increase in revenue for the additional units produced (from 100 to 120 units) at the new price ($2.20), minus the revenue these units would have generated at the original price ($2). This is (20 units * $2.20) - (20 units * $2) = $44 - $22 = $22.

If a Small Country Produces 100 Units of Product X