Based on Figure 6.1,how much revenue will the government raise from a $0.25 per bushel tariff on soybean imports?
A)The government will raise $2.5 million.
B)The government will raise $5 million.
C)The government will raise $15 million.
D)The government will raise $32.5 million.
E)The government will see no increase in income; because the country is small, foreign firms will simply not serve it after the tariff is imposed.

Question

Quizplus · Accepted Answer

According to Figure 6.1, a $0.25 per bushel tariff will result in a decrease in imports from 60 million bushels to 40 million bushels. The government revenue is calculated by multiplying the tariff per unit by the quantity of imports, which gives $0.25 × 40 million = $10 million. However, this revenue is shared between domestic producers and the government. The shaded area in the figure represents the revenue gain for the producers, which is $10 million − $5 million = $5 million. Therefore, the revenue gain for the government is $10 million – $5 million = $5 million, which is equal to the tariff revenue multiplied by the quantity of imports after the tariff (i.e., $0.25 × 40 million = $10 million) minus the revenue gain for domestic producers (i.e., $5 million). Therefore, the answer is C.