Suppose that the equations S = 2P and D = 6 - P represent a small country's home supply and home demand curves, and the free-trade world price is $1. If the government imposed a 50% tariff on imports, how much revenue would it collect as a result of the tariff? (Note: It is possible to consume partial units of this product, such as 2.5 units.)
A) $1.50
B) $2.75
C) $0.50
D) $0.75

Question

Quizplus · Accepted Answer

At the world price of $1, the home demand (D) would be 6 - 1 = 5 units, and the home supply (S) would be 2*1 = 2 units, leading to an import of 3 units. With a 50% tariff, the new price becomes $1.50. The new demand at this price is 6 - 1.5 = 4.5 units, and the new supply is 2*1.5 = 3 units, leading to an import of 1.5 units. The revenue collected from the tariff is 1.5 units * $0.50 (50% of $1) = $0.75.

Suppose That the Equations S = 2P and D =