Figure 7.2

Suppose the Canadian government imposes a $0.40 per pound tariff on rice imports. Figure 7.2 shows the impact of this tariff.
-Refer to Figure 7.2.The tariff revenue collected by the government equals the area

Question

Figure 7.2
  
Suppose the Canadian government imposes a $0.40 per pound tariff on rice imports. Figure 7.2 shows the impact of this tariff.
-Refer to Figure 7.2.The tariff revenue collected by the government equals the area

Quizplus · Accepted Answer

The tariff revenue collected by the government only includes the rectangle labeled "E" in Figure 7.2. This is because the tariff is a per pound tax on imports, so the revenue collected is simply the tariff rate multiplied by the quantity of imports. In this case, the tariff rate is $0.40 per pound and the quantity of imports is given by the vertical distance between the world price line and the demand line at the new equilibrium quantity, which is labeled "Q2" in the figure. Therefore, the tariff revenue equals $0.40 times the distance between the world price and the demand line at Q2, which is the area labeled "E" in the figure.

Figure 7.2 Suppose the Canadian Government Imposes a $0.40 Per Pound Tariff