Figure 4.4 Market for Gasoline in a Small Nation

-Figure 4.4 represents the market for gasoline in a small nation.The free trade world price of gasoline is $3.50.Suppose this small nation imposes a tariff on gasoline of $.50 per gallon.The change in producer surplus would be
A) $15
B) $12.5
C) $47.50
D) $57.50

Question

Figure 4.4 Market for Gasoline in a Small Nation
 
-Figure 4.4 represents the market for gasoline in a small nation.The free trade world price of gasoline is $3.50.Suppose this small nation imposes a tariff on gasoline of $.50 per gallon.The change in producer surplus would be
A) $15 
B) $12.5 
C) $47.50 
D) $57.50

Quizplus · Accepted Answer

The producer surplus is the area above the supply curve and below the world price. Before the tariff, the producer surplus was (40-20)*3.50/2 = $35. After the tariff, the domestic price will rise by $.50 to $4.00, so the new producer surplus will be (30-20)*4.00/2 = $50. The change in producer surplus is therefore $50-$35 = $15.

Figure 44 Market for Gasoline in a Small Nation