Suppose the domestic demand for turnips is P = 100

Question

Suppose the domestic demand for turnips is P = 100 - Q. The domestic supply of turnips is P = 10 + Q. The world price is $30 per unit. If the tax on import is $10 unit, the import will be:

Quizplus · Accepted Answer

With a $10 import tax, the effective price for imports becomes $40. Setting the domestic demand equal to the new effective price gives 100 - Q = 40, solving for Q gives 60 units of domestic demand. Setting the domestic supply equal to the world price gives 10 + Q = 30, solving for Q gives 20 units of domestic supply. The difference, 60 - 20, is 40 units, which would have been the import without tax. However, with the tax, consumers reduce their consumption due to the higher price, and suppliers are willing to supply more. The correct calculation without considering the tax effect directly in the demand and supply equations but adjusting through the world price plus tax for imports leads to a misunderstanding in my explanation. The correct approach is to find the quantity demanded and supplied at the world price plus tax and then calculate the difference. Given the world price of $30 and a $10 tax, the price to consumers for imports is $40. At this price, domestic demand is 100 - 40 = 60, and domestic supply is 10 + 40 = 50. The import, therefore, is the difference between demand and supply at this price, which is 60 - 50 = 10 units, indicating an error in the initial calculation and choice selection.