Refer to the graph above, where S_d and D_d are the domestic supply and demand curves for a product. The world price of the product is $6. If the market is open to international trade but there is a tariff of $2 per unit imposed, the total government revenue generated by the tariff would be:

Question

Quizplus · Accepted Answer

Without the tariff, the equilibrium quantity is at Q1 and the price is $6. With the tariff of $2, the domestic price increases to $8, causing a decrease in domestic demand to Q2 and an increase in domestic supply to Q3. The difference between the quantity demanded and quantity supplied domestically is imported.

So, with the tariff, the quantity imported is (Q1 - Q3), which equals to (50-20) = 30 units.

Thus, the total government revenue generated by the tariff would be ($2 x 30 units) = $60. Hence, option B is correct.

Refer to the Graph Above, Where Sd and Dd Are

Refer to the Graph Above, Where S_d and D_d Are