The following image shows the market for wheat for the country of Palatino.S^D is the domestic supply of wheat,and D^D is the domestic demand for wheat.Suppose the world price of wheat is $9 per bushel of wheat.Suppose a specific tariff of $6 is imposed on each bushel of wheat imported.Government revenue from the tariff equals:
Figure 17.4

Question

The following image shows the market for wheat for the country of Palatino.S<sup>D</sup> is the domestic supply of wheat,and D<sup>D</sup> is the domestic demand for wheat.Suppose the world price of wheat is $9 per bushel of wheat.Suppose a specific tariff of $6 is imposed on each bushel of wheat imported.Government revenue from the tariff equals: Figure 17.4 A) $45,000. B) $3,000,000. C) $1,800,000. D) $900,000. E) $50,000.

Quizplus · Accepted Answer

To find the government revenue from the tariff, we need to calculate the quantity of imports and the amount of the tariff per unit. The world price of wheat is $9 per bushel, and with a tariff of $6 per bushel, the effective price of imported wheat is $15.

At this price, the quantity of imports would be the difference between domestic demand and domestic supply at this new price level, which is:

QS = 22 million bushels - 16 million bushels = 6 million bushels

The government revenue from the tariff would be the tariff per unit multiplied by the quantity of imports:

Tariff revenue = $6 per bushel x 6 million bushels = $36 million

Therefore, the correct answer is C) $1,800,000.

The Following Image Shows the Market for Wheat for the Country