The figure given below depicts the negatively sloped demand and positively sloped supply curves of wheat in a country. Figure 20.2 According to Figure 20.2, if the world price of wheat is $25 and a tariff of $10 is imposed by the domestic government, the total tariff revenue collected by the government is:

Question

The figure given below depicts the negatively sloped demand and positively sloped supply curves of wheat in a country. Figure 20.2  According to Figure 20.2, if the world price of wheat is $25 and a tariff of $10 is imposed by the domestic government, the total tariff revenue collected by the government is:

Quizplus · Accepted Answer

At the world price of $25, the quantity of wheat demanded by domestic consumers is QD1 and the quantity of wheat supplied by domestic producers is QS1. With the imposition of a $10 tariff, the new domestic price of wheat becomes $35. At this price, the quantity of wheat demanded by domestic consumers is QD2 and the quantity of wheat supplied by domestic producers is QS2. The difference between QD2 and QS2 gives the quantity of wheat imported by the country after the imposition of the tariff.

Therefore, the total revenue collected by the government is equal to the tariff multiplied by the quantity of imported wheat, which is ($10 × (QD2 – QS2)).

From the graph, we can see that (QD2 – QS2) = 200. Therefore, the total tariff revenue collected by the government is $2,000 ($10 × 200).

Hence, the correct answer is D.

The Figure Given Below Depicts the Negatively Sloped Demand and Positively