The following formula is used to estimate the deadweight loss from a
Tariff:.
Where PM is import value;
Is the world price and M is the volume
Of imports.
Suppose that the United States imposes a 20% antidumping duty on
Chinese steel imports when the world price is $500 per ton, the value
Of imports with the duty is $400 million, and the volume of imports
With the duty fell by 10%.Which of the following is the deadweight
Loss?

Question

The following formula is used to estimate the deadweight loss from a
Tariff:. 
Where PM is import value; 
Is the world price and M is the volume
Of imports.
Suppose that the United States imposes a 20% antidumping duty on
Chinese steel imports when the world price is $500 per ton, the value
Of imports with the duty is $400 million, and the volume of imports
With the duty fell by 10%.Which of the following is the deadweight
Loss?

Quizplus · Accepted Answer

Using the given formula, we can calculate the initial import value:
PM = M x 11eb85ad_6ebf_5025_8109_bffd6f2ca494_TB7261_00 = M x $500

Since the import value after the tariff is $400 million, we can set up the following equation:

$400 million = (0.8M) x $500

Solving for M, we get M = 800,000 tons.

With the tariff in place, the volume of imports fell by 10%, or 80,000 tons.

To calculate the deadweight loss, we first need to find the change in consumer surplus, which is the area of the triangle between the world price and the post-tariff price, multiplied by the reduction in volume.

The post-tariff price is $500 x 1.20 = $600 per ton.

The change in consumer surplus is:

(0.5 * ($500 - $600) * 0.8M * 0.1) = $4 million

Therefore, the deadweight loss is also $4 million, since it represents the loss in total welfare due to the tariff.

The Following Formula Is Used to Estimate the Deadweight Loss