$16 14 12 10 Da 10 20 30 40 50 60 70 80 90 Quantity Refer to the accompanying gr
ID: 1173765 • Letter: #
Question
$16 14 12 10 Da 10 20 30 40 50 60 70 80 90 Quantity Refer to the accompanying graph, where Sdand Dd are the domestic supply and demand for a product. The world price of the product is $6. What would be the difference in the total revenue received by foreign producers after a quota of 20 units is imposed compared with the total revenue received by foreign producers when a $4 per unit tariff is imposed? Multiple Choice $120 moreevenue with a tanif than with a quota $200 more revenue with a quota than with a tariff $80 more revenue with a auota than with $80 more revenue with a quota than with a tariff $0 revenue differenceExplanation / Answer
We will compare the revenues when a quota of 20 units is imposed and when there is a $4 unit tariff on producers.
When quota is imposed:
Quota refers to the restriction that the sellers cannot sell a good beyond a certain number. Here the maximum amount that the sellers can sell to domestic consumers is 20 units.
Since the world price is $6, the revenue = Price * quantity
=> 6*20 = 120. Therefore foreign sellers will earn a maximum of $120 when quota is imposed.
When tariff of $4 imposed on sellers:
Now the tariff is imposed. Earlier the price of the good sold by foreign sellers, or world price was $6. But due to tariff, the new price will be: $6 + $4 = $10
In the domestic market, we see that at 10 dollars, demand is 60 units but supply is only 40 units. Therefore there is excess demand and only 40 units will be sold.
The total revenue by selling 40 units at $10 = $400. However the seller has to give $4 for every unit sold.
Therefore total tariff to be paid after selling 40 units at $4 = 4* 40 = $160
Which gives the revenue earned by sellers afterpaying tariff = 400 - 160 = $240
Now we will compare the revenue sellers earn under quota and tariff, and we will find that:
Tariff revenue - quota revenue = 240 - 120 = $120
Therefore the seller's revenue is $120 more under tariff than quota. Hence first option is the answer.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.