1. You are given the following information about copper in the United States: Si
ID: 2440863 • Letter: 1
Question
1. You are given the following information about copper in the United States: Situation With Tariff $0.40 per lb. S0.20 per lb. S0.60 per lb. 210 million lb 140 million lb. Situation Without Tariff $0.50 per lb. World Price Tariff (specific) U.S. Domestic Price U.S. Consumption U.S. Production $0.50 per lb. 250 million lb. 100 million lb. a. Calculate the loss to U.S. consumers of copper from imposing the tariff. (5 points) b. Calculate the gain to U.S. producers of copper from imposing the tariff. (5 points) c. Calculate the gain in tariff revenue to the U.S. government from imposing the tariff.(10 points) d. Calculate the net gain or loss to the U.S. economy as a whole from imposing the tariff. (I0 points) You must show calculations and results.Explanation / Answer
1) Solution: 23 million
Working: Due to tariff the domestic price increases by $0.10 (= $0.60 - $0.50) per pound. Consumers consume 40 million (=250-210) pounds less. The consumption effect eqails $2 million (= ½ x $0.10 x 40 million). Consumers lose an additional $21 million (= $0.10 x 210 million) beacuse of the higher price that they paid for their consumption after the tariff is imposed.
2) Solution: 23 million
Working: The producers in U.S. charge $0.10 more per pound and expand the production by 40 million pounds. The producer surplus gain from expanding the production quantity equals $2 million (= ½ x $0.10 x 40 million). The gain from selling the production quantity they used to sell before the tariff equals $10 million (100 million x $0.10).
3) Solution: $14 million
Working: After imposition of the tariff the U.S. imports 70 million (=210-140) pounds. The revenue equals $14 million (=$0.20 x 70 million)
4) Solution: $3 million
Working: Net gain = government revenue - consumer loss + producer gain = $14 million - $23 million + $12 million = $3 million
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